Himachal Pradesh High Court
Azeet International Pvt. Ltd. vs Himachal Pradesh Horticultural ... on 10 December, 1997
Equivalent citations: [1998]92COMPCAS356(HP)
Author: R.L. Khurana
Bench: R.L. Khurana
JUDGMENT R.L. Khurana, J.
1. The present petition has been filed by Azeet International (Pvt.) Ltd. (hereinafter referred to as "the petitioner-company"), under Sections 433 and 439 of the Companies Act, 1956 (for short, "the Act"), for the winding up of the respondent-company, Himachal Pradesh Horticultural Produce Marketing and Processing Corporation Ltd.
2. The averments made in the petition, briefly stated, are these. The petitioner-company is carrying on the business of manufacture and sale of corrugated fibre board and boxes for the packing of horticultural produce. On the basis of supply orders placed from time to time during the year 1989-90, the petitioner-company supplied 4,15,066 cartons of corrugated fibre board valued at Rs, 69,50,350.50 to the respondent-company.
The supply so made included the supply of 1806 cartons as samples, valued at Rs. 30,250.50, the agreed value per carton being Rs. 16.75. A sum of Rs. 62,30,312'.75 was paid by the respondent-company as part payment towards the cost of cartons supplied. In addition another sum of Rs. 1,97,000 was paid by the respondent-company towards freight charges.
3. According to the petitioner-company, after adjusting the amounts received from the respondent-company, a sum of Rs. 11,27,164.50 is still due to it from the respondent-company as under :
(Rs.)
(i) Balance cost of supplies including cost of samples.
5,25,258.50
(ii) Balance amount of earnest money deposited 25,000.00
(iii) Interest on the earnest money up to March 31, 1991 37,440.00
(iv) Interest on delayed payments and amounts not paid up to March 31, 1991 4,85,466.00
(v) Warehousing charges 54,000.00 Total 11,27,164.50
4. A notice, under Section 434 of the Act, was served upon the respondent-company calling upon it to pay the abovesaid amount within three weeks of the receipt of the notice. Despite such notice, the respondent-company failed to pay the amount due and to discharge its liability.
5. The petitioner-company in seeking the winding up of the respondent-company has averred that the respondent-company is commercially insolvent and unable to discharge its debts and to pay the dues of the petitioner-company. The financial position of the respondent-company is wholly unsound. The accumulated losses up to March 31, 1989, as per the audited accounts of the respondent-company are Rs. 14,52,80,536. Such accumulated losses up to the end of financial year 1989-90 are to the tune of Rs. 15,63,54,000. It has further been averred that as against the fixed and current assets to the tune of Rs. 1,776.37 lakhs, the respondent-company has a liability, in the form of borrowings and third parties liabilities, to the extent of Rs. 2,580 lakhs.
6. The petitioner-company has thus prayed for the winding up of the respondent-company.
7. The respondent-company resisted the petition for winding up. It was pleaded that as against the supply order for 4.15 lakhs of cartons, the petitioner-company had supplied only 4,12,915 cartons valued at Rs. 69,16,326.25. It was averred that as per the books of account of the respondent-company, only a sum of Rs. 1,80,239.10 is payable to the petitioner-company as under:
(Rs.)
(a) Total value of 4,12,915 cartons supplied 69,16,326.25
(b) Earnest money with the respondent-company 25,000.00 Less :
(a) Payment already made (including the amount adjusted by the petitioner-company towards freight charges) 64,83,107.50
(b) Forfeiture/deduction as per terms of supply order :
(i) 1,20,000 rejected cartons at the rate of 10 per cent, of cost 2,01,000.00
(ii) 10 per cent, of the cost of 5958 cartons supplied without inspection 9,979.65
(iii) Forfeiture of EMD for the last supply order as 2085 cartons were supplied less against the supply order of 2 lakhs cartons(c) Amount payable to the petitioner-company 67,000.00 1,80,239.10
8. The respondent-company disputed its liability towards the payment of freight charges. It was averred that the respondent-company as per the terms of the supply order is not liable for the cost of cartons which were sent to the Indian Institute of Packaging for testing. Such testing was to be carried out at the cost and expenses of the petitioner-company. Similarly, the liability towards warehousing charges and interest was disputed.
9. The further case of the respondent-company is that the cartons were to be supplied by the petitioner-company strictly according to the specifications detailed in the supply orders. 1,20,000 cartons were found not to be conforming to the specifications and these were found to be of substandard quality. 5958 cartons were supplied without inspection, while 2085 cartons were supplied less than the quantity ordered for. Though, as per the terms of the supply order, the respondent-company was entitled to reject the sub-standard cartons as also to withhold entire payment therefor in addition to forfeiture of the earnest money, the respondent-company has only withheld 10 per cent, of the cost of such sub-standard cartons as was done in the case of other suppliers.
10. It was also pleaded that the respondent-company has a sound financial position, since being a Government company it is being fully financed by the Government of Himachal Pradesh to meet all its financial obligations and that it is in a position to discharge all its financial obligations in accordance with law.
11. It will not be out of place to mention here that the admitted liability to the tune of Rs. 1,80,239.10 stands discharged by the respondent-company on its having deposited such amount in court in pursuance of the order of the court. Such amount also stands released and paid to the petitioner-company.
12. The dispute thus, which remains, is in respect of :
(a) non-payment of the security amount of Rs. 25,000 ;
(b) deduction of 10 per cent, of cost of sub-standard cartons, etc. ;
(c) warehousing charges ; and
(d) interest as claimed by the petitioner-company.
13. It is well-settled that a winding up petition cannot be stressed to seek enforcement for the realisation of debt where there exists a bona fide dispute. The company court is required to judge whether the defence put up by the company is bona fide and is in good faith. It has further to be seen that the defence raised is one of substance and the same prima facie is likely to succeed.
14. The apex court in Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan [1966] 36 Comp Cas 426, 430 (SC) has held :
"A winding-up petition is a perfectly proper remedy for enforcing payment of a just debt. It is a mode of execution which the court gives to a creditor against a company unable to pay its debts."
15. It was further observed in the following terms, at page 430 of the report :
"It is true that 'a winding-up order is not a normal alternative in the case of a company to the ordinary procedure for the realisation of the debts due to it' ; but none the less it is a form of equitable execution. Propriety does not affect the power but only its exercise."
16. In Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Pvt. Ltd. [1972] 42 Comp Cas 125, 131 (SC) it was held by the apex court :
"The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on'Which the defence depends."
17. Again in Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami [1965] 35 Comp Cas 456 (SC), it has been held by the apex court that a winding-up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. A petition filed ostensibly for a winding up order but really to exercise pressure Will be dismissed, and under circumstances may be stigmatised as a scandalous abuse of the process of the court.
18. The High Court of Karnataka in T. Srinivasa v. Flemming (India) Apotheke Pvt. Ltd. [1990] 68 Comp Cas 506 has held that it is not for the court hearing a petition for winding up under section 433 of the Companies Act, 1956, to assess evidence and refuse a decree or to draw up a decree in favour of the petitioner and then to proceed to wind up the company. In the summary procedure which the company court must follow, if the court is satisfied, prima facie, that the defence raised in the circumstances of the case is bona fide and is likely to succeed in a civil court, that would constitute sufficient reasons for the court to reject the petition, relegating the parties to the civil court.
19. The dispute between the parties with regard to the disputed claims pertains to the interpretation of various terms of the supply order against which the supplies of cartons were made by the petitioner-company. Such a dispute cannot possibly be decided in the present summary proceedings. The same can be appropriately decided in a properly framed suit. The defences raised by the respondent-company on the face of it appear to be bona fide and such defences are likely to succeed. Therefore, following the principles, detailed above, it is not a fit case for the exercise of powers of winding-up under Section 433 of the Act.
20. There is yet another aspect of the case. Admittedly, a civil suit for the recovery of the amount, claimed in the present petition, has been filed by the petitioner-company against the respondent-company and such suit is pending adjudication. Under these circumstances, the machinery for winding up cannot be allowed merely as a means for realising a debt, which is disputed and is subject matter of a suit. The High Court of Punjab and Haryana in State Trading Corporation of India Ltd. v. Punjab Tanneries Ltd. [1989] 66 Comp Cas 634, also had declined to exercise the powers under Section 433 of the Act, in view of the fact that the petitioner therein had already resorted to a civil suit for recovery of the disputed debt.
21. Resultantly, the petition is dismissed.