Calcutta High Court
Martin & Harris Pvt. Ltd vs Organon (India) Pvt. Ltd on 3 November, 2014
Author: Harish Tandon
Bench: Harish Tandon
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
C.P. 448 OF 2012
Martin & Harris Pvt. Ltd.
vs
Organon (India) Pvt. Ltd.
BEFORE
The Hon'ble Justice
HARISH TANDON
Appearance:
Mr. Pratap Kumar Chatterjee, Sr. Adv,
Mr. Debnath Ghosh, Advocate,
Mr. Sanjoy Ginodia, Advocate,
Mr. Manoj Kuamr Tiwari, Advocate,
.....for petitioning creditor.
Mr. H.L. Tiku, Sr. Advocate,
Ms. Yashmeet Kaur, Advocate,
Ms. D. Adhikary, Advocate.
Mr. S. Mitra, Advocate
....for Martin & Harris Pvt. Ltd.
Judgment On : 03.11.2014
HARISH TANDON, J :
This winding up petition is at the instance of the petitioning- creditor for non-payment of the legally recoverable dues by the Company.
The winding up petition is based upon the dues relatable to the value of the goods held by the Company, money receivable from various customers and the amount collected by the Company from the sales of the product of the petitioning-creditor. An agreement was entered into in the letter form on February 18, 1998 between the petitioning-creditor and the Company to act as a handling agent and for sale of the goods manufactured by the petitioning- creditor. The salient feature of the agreement discernible from the averments made in the writ petition are; (i) the stock would be transferred by the petitioning-creditor to the Company (ii) the Company shall affect the sales of the product manufactured by the petitioning-creditor to various customers upon issuing the invoices.
(iii) the sale proceeds collected by the Company shall be deposited in the account of the petitioning-creditor after deducting the commission at the rate of 10.5% of the sale proceeds as well as taxes and other expenses. (iv) the Company shall submit form 'F' for stock transferred by the petitioning-creditor at the end of the subsequent month. (v) on failure to remit the sale proceed, after deducting the commission, taxes and other expenses within 40 days from the date of the invoice, the Company would be liable to pay and interest at the rate of 2% per month.
By a subsequent letter dated April 10, 2001, the earlier agreement was modified as certain dues, responsibilities and activities entrusted upon the Company was withdrawn and to be performed and/or observed by the petitioning-creditor. The petitioning-creditor underwent in change of management and ownership and the new management adopted policies, which resulted into a discontinuance of the agreement. Ultimately, the agreement was terminated on August 2, 2010, by giving three months time to the Company. In reply to the letter of termination, the Company issued raised in objection to unilateral termination citing the long-standing relation. The petitioning-creditor reverted back to the Company and confirmed to their stand that because of the change policy, the agreement with the Company cannot be continued further.
The Company filed a suit being Suit No. 2943 of 2010 before the Bombay High Court on November 8, 2010 praying a decree for a sum of Rs. 23,83,84,62,001.41 (Rupees Two thousand three hundred eighty three crores eighty four lacs sixty two thousand one and paisa forty one), broadly on account of damages, loss of good will, managerial and staff expenses, wasted expenditure, Court cases claims for 'C' and 'F' Forms, sales tax and service tax and further claimed an adjustment of Rs. 13,46,33,873.59/- being amount received from the stockiest and the amount likely to be received for the goods sold up to the date of the termination of the agreement.
The petitioning-creditor issued a statutory notice of winding up upon the Company on December 8, 2010, calling upon the Company to pay a sum of Rs. 18,06,54,531.09/- within 24 hours from the time of the received of the said notice. It was further indicated therein that the stocks presently lying with the Company should also be handed over otherwise, the Company would be exposed to make the payments for the same along with the interest. By reply dated December 29, 2010, the Company denied the claim of the petitioning-creditor with categorical assertion that they have lien on the stock against the claim made in the suit before the Bombay High Court, with further assertions that the amounts collected and/or receivable in due course stands adjusted against the said claim made therein.
By a further letter dated January 10, 2011, the Company intimated the petitioning-creditor that substantial stock, held by it, has lost the self-life and sold their intention to hand over the same provided the authorised representative of the petitioning-creditor would visit the place of business on a mutually convenient debt and submit the road permit and form 'F' after issuing the proper receipt therefore. In its letter dated January 21, 2011, the Company explicitly indicated that the stocks having self-life, if not taken back, an effort would be made to sale the cerebral stock. The petitioning-creditor replied the said letter alleging that a complaint has received against the Company for supply of the damages and expired products to the consumer with categorical assertion that an arrangement are being made to take the delivery of all the stocks in possession of the Company. The Company once again showed their intention in a letter dated February 7, 2011 to hand over the stocks against the payments and also upon execution of the requisite documents.
It appears that a winding up petition was filed in the meantime being Company Petition No. 358 of 2011 and an application for appointment of the Professional Liquidator was taken out therein. On refusal to pass the interim relief on the said application, an appeal was taken out APOT No. 534 of 2011 which was disposed of on 24 November, 2011 relegating the parties to the Trial Court with further direction upon the Company to prepare the statement of stocks lying in their hand and to hand over the same to the learned Advocate on record of the petitioning-creditor. The petitioning-creditor subsequently withdrew the said writ petition with the liberty to file afresh which was duly granted. Subsequently the petitioning-creditor served a fresh statutory notice under Section 434 of the Companies Act, 1956 and filed the instant winding up petition before this Court.
The defence taken in the affidavit-in-opposition is adumbrated as below:
(a) The Company has filed a suit for money against the petitioning-creditor before the Bombay High Court wherein a counter-claim covering the amount claimed in the winding up petition is filed by the petitioning-creditor and, therefore, the instant winding up petition is liable to be dismissed.
(b) There is no admission either made in the earlier winding up petition or otherwise as to the alleged amount by the respondent Company.
(c) Certain amounts, which were admittedly received by the Company or receivable from its customs/stocks, have been adjusted and/or set off against the claims made in the suit.
(d) The Company has a lien over the stocks against the claim made in the suit.
(e) The winding up petition should not be admitted when the Company has a bona fide defence.
Mr. Chatterjee, the learned senior Counsel for the petitioning- creditor submits that the suit for recovery of money and the winding up petition stands on the different footing and both the remedies can be simultaneously proceeded with. He further submits that the Company have filed the suit by creating illusory cause of action with an intend to defeat the winding up petition which should not be encouraged. He audaciously submits that the Company Court can allow the winding up petition if the defence is not bona fide but a mere moonshine and illusory. Mr. Chatterjee would further contend that the agreement provides the deposit of the price of the goods after deducting the commission, taxes and other expenses and admittedly, the petitioner have received an amount but did not deposit the same. He strongly submits that Section 221 of the Contract Act is not applicable when there is no dispute on account of commission, disbursement and services. On the plea of debts being shown as doubtful in the balance sheets of the petitioning-creditor, he submits that this does not affect in any manner right to receive or recover the said amount. He thus concludes by saying that the petitioner has not bona fide defence in the winding up petition and the same should be allowed.
Mr. Tiku, the learned senior Counsel appearing for the Company submits that the suit filed by his client is not restricted to the damages but several other claims are made therein. He further submits that though the Civil suit for recovery of money and the winding up petition are different but once the party has approached the Civil Court raising a bona fide dispute, the winding up petition should not be allowed to be proceeded with simultaneously. He vehemently submits that the petitioner has filed a counter-claim in the said suit for recovery of the amount which is the subject matter of dispute in the winding up petition which is indicative of the fact that there is a bona fide dispute on such entitlement. According to him, the negligence should not be attributed to non-payment, as it requires something more to prove. He audaciously submits that Company is otherwise solvent which could be ascertained from the annual report and, therefore, the Court should not direct the winding up of the Company.
By refuting the contention of the petitioning-creditor, he submits that the winding up of the Company is the discretionary relief as it is not meant for recovery of the money for which the Civil Court is competent. He thus submits that the plaintiff is entitled to adjust and/or set off against his claim made in the civil suit which, in fact, has been done and, therefore, it cannot be said that because of the admission made otherwise, the winding up petition should be allowed. As per Mr. Tiku, if the defence is debatable and the rights of the parties are to be decided on evidence, the parties should be relegated to the civil suit instead of directing the winding up of the Company. In other words, he submits that the defence in the winding up petition cannot be said to be moonshine or illusory but a bona fide one, which does not invite, the Company Court to adjudicate upon on the basis of the affidavits. He concludes with a submission that the winding up petition has come up after the suit is filed by his client before the Bombay High Court and, therefore, it should not be entertained but be dismissed.
Before proceeding to deal with the respective contentions, so advanced, it would be pertinent to record that subsequent to the closure of the arguments, Mr. Tiku brings to the notice of this Court that the counter-claim filed belatedly before the Bombay High Court has been accepted, after condonation of delay which according to Mr. Tiku further strengthened his stand that instead of proceeding with the winding up, the parties should explore their relief in the civil suit.
Admittedly, the respondent-company has filed a monetary suit for damages wherein the counter-claim covering the amount being the subject matter of this writ petition is allowed to be taken on record after condonation of delay. The suit for money as well as the winding up petition can run simultaneously and cannot act as a deterrent against each other. The suit filed by the Company is a bogus suit creating an impression that it is allowed to docket of the Court to thought the claim under the winding up petition and the dispute does not appear to be bona fide or substantial one, the Court can still proceed with the winding up. It would be different when the Court finds that the claim is similar and identical either in the suit or the counter-claim and the dispute is bona fide, the Company Court shall refuse to admit the winding up petition and relegate the parties to pursue their remedy in the civil suit.
In case of SRC Steel (P) Ltd. -v- Bharat Industrial Corporation Ltd. reported in 2005 (4) CHN 343, the Division Bench of this Court in somewhat similar circumstances held:
"20. Mr. Sen rightly submitted that the presentation of a winding up petition for a just debt above the floor limit specified in section 434 (1) (a) of the Companies Act is an unconditionally given statutory right. Whether a suit or a counter-claim is filed by the company or not, this remedy can always be resorted to Mr. Mukherjee's submission was that although section 10 of the Code of Civil Procedure does not apply, perhaps in terms, in a situation of this nature, yet the Company Court has ample jurisdiction to stay or adjourn the hearing of the winding up petition pending the disposal of the suit. He drew our attention to the Company Court Rules Nos. 6 and 9, which respectively provide that the practice of the Courts and the Code will apply as far as practicable to company matters and that the inherent powers of the Court are not affected by the rules at all, According to Mr. Mukherjee, proceeding in two forums is not to be encouraged. The petitioning creditor having chosen the remedy of filing a counter-claim, and having not abandoned such choice even until date, the petitioning creditor should be held to that choice. Mr. Mukherjee also showed us the provisions of section 443 of the Companies Act which lays down the various powers of Court and the orders which might be passed by it on hearing a winding up petition. Not all these powers are exercisable at the stage at which we are to day, i.e. the receiving stage. For example the power to wind up a company finally is not exercisable at this stage, but will become exercisable, if at all, after advertisements have been duly published. But the various other powers, including the residuary powers given in section 443 are quite sufficient for the Company Court, should it be of such opinion, to stay the hearing of the winding up petition until the suit is disposed of, even at this stage."
The winding up petition shall not be put at halt after it is set in motion merely because the Company has approached the Civil Court on illusory cause of action. Where the proof of debt is indisputable, the Court should pass the order for winding up of the Company. Section 434 of the Companies Act postulates that the Company shall be deemed unable to pay its debts, if it neglected to pay the sum demanded by the creditor in a notice, caused to be delivered as its registered office within the statutory period. The word "neglected" is a term of significant character and cannot be equated with omission. The omission to pay does not mean negligence as such omission should correspond to and omission without any reasonable reasons or cause. Way back in the year 1919, the Division Bench of this Court in case of Indian Companies Act & the Company -v- The Maharaja Bahadur Sir Rameswar Singh, G.G.I.E; of Darbhanga reported in AIR 1920 Cal held:
"24. And it was argued that in this case, the Company had not 'neglected' to pay the sum demanded within the meaning of Section 163 (1) of the Indian Companies Act. Reliance was placed upon the judgment of Sir G. Jessel, M.R; in London and Paris Banking Corporation in re (1874) 19 Eq. 444: 23 W.R. 643, in which case he was dealing with the English Statute which is in similar terms to the Indian Act and in which he said: "Negligence is a term which is well known to the law. Negligence in paying a debt on demand, as I understand it, is omitting to pay without reasonable excuse. Mere omission by itself does not amount to negligence. Therefore, I should hold, upon the words of the Statute, that where a debt is bona fide disputed by the debtor, and the debtor alleges, for example, that the demand for goods sold and delivered is excessive and says that he, the debtor, is willing to pay such sum as he is either advised by competent valuers to pay, or as he himself considers a fair sum for the goods, then in that case he has not neglected to pay, and is not within the wording of the Statute."
The aforesaid proposition is further reiterated by the Bombay High Court in case of ITC Ltd -v- Fomento Resorts & Hotels reported in (1991) 70 Company Cases 459 as follows:
" He clarified that neglect to pay is not equivalent to omission to pay for it requires that such omission is without reasonable cause or valid excuse."
It admits no ambiguity to say that the winding up petition is not intended as a means to recover debts in an ordinary mode of debt recovery. It is not a substitute to ordinary procedure of law which provides the remedy before the Civil Court to recover the debts and, therefore, cannot be said to be an alternative mechanism for debt realizations as held in case of ITC Ltd; (supra) in the followings:
"It is well-settled that a winding up petition should not be allowed to be taken recourse of as a means to recover debts from a company. It is not a legitimate way to enforce payment of debts which are bona fide disputed by a company and cannot be sued as a weapon to pressurise and coerce the company to make payments. This clear position of law also flows from the authorities relied upon at the Bar and thus, in truth, it is not necessary for me to advert to such authorities. I may, however, make a brief reference to some of them, namely, to J. Enterprises' case [ 1987] 61 Comp Cas 504 (Cal), wherein the Court held that winding up petitions are not intended to be exploited as a normal alternative to the ordinary mode of debt realisation and further, that the claim should not be a running claim but one which is crystallised, as well as to Madhusudan Gordhandas' case [1972] 42 Comp Cas 125 (SC), Wastinghouse Saxby Farmer's case [1982] 52 Comp Cas 479 (Cal), United Western Bank Ltd's case [1978] 48 Comp Cas 378 (Bom) and Goel Bros. And Co. Pvt. Ltd.'s case [1980] 50 Comp Cas 356 (Bom)."
The said proposition is further fortified in case of Shadi Lal Enterprises -v- Co-Operative Co.Ltd. reported in 2001 (103) Company Cases 863 in these words:
" It is beyond dispute that the machinery for winding up will not be allowed to be utilised merely as a means for realising its debts due from a company. In Amalgamated Commercial Traders (P) Ltd. -v- A.C.K. Krishnaswami [1965] 35 Comp Cas 456, 463, the Apex Court quoted with an approval the following passage from Buckley on the Companies Acts, 13th edition, page 551:
"it is well-settled that a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances be stigmatized as a scandalous abuse of the process of the court."
The winding up petition should be allowed when the debt is crystallized clear and undisputable and not when the dispute is bona fide and requires to be adjudicated before the Civil Court. The defence of the Company should be in good faith and one of substance and every possibility to sustain in law. The Apex Court in case of Pradeshiya Industrial -v- North India Petro reported in (1994) 79 Company Cases 835 interpreted the expression "unable to pay its debts" in commercial sense to mean that the existing liabilities of the Companies is more than its assets and, therefore, is insufficient to meet the same in the following:
"What then is inability when the section says "unable to pay its dues"? That should be taken in the commercial sense, in that, it is unable to meet current demands. As stated by William James, V.C.; it is "plainly and commercially insolvent- that is to say, that its assets are such, and its existing liabilities are such, as to make it reasonably certain- as to make the court feel satisfied - that the existing and probable assets would be insufficient to meet the existing liabilities."
[European Life Assurance Society, In re ( 1869) LR 9 Eq 122, 128; V.V. Krishna Iyer Sons -v- New Era Mfg. Co. Ltd. ( 1965) 35 Comp Cas 410, 422 (Ker)."
The solvency of the Company is one of the aid in determining whether unability to pay the debt is a result of the bona fide dispute or not. In this regard, the reliance could be safely made on the judgment of the Supreme Court rendered in case of IBA Health (I) (P) Ltd. -v- Info-Drive Systems Sdn.Bhd., reported in (2010) 10 SCC 553 wherein it is held that in case of refusal to pay on a bona fide cause or excuse, the commercial solvency of the Company is one of the relevant factors but not in case where their exist no dispute to the liability in these words:
"24. The appellant Company raised a contention that it is commercially solvent and, in such a situation, the question may arise that the factum of commercial solvency, as such, would be sufficient to reject the petition for winding up, unless substantial grounds for its rejection are made out. A determination of examination of the company's insolvency may be a useful aid in deciding whether the refusal to pay is a result of the bona fide dispute as to liability or whether it reflects an inability to pay, in such a situation, solvency is relevant not as a separate ground. If there is no dispute as to the company's liability, the solvency of the company might not constitute a stand alone ground for setting aside a notice under Section 434(1)(a), meaning thereby, if a debt is undisputedly owing, then it has to be paid. If the company refuses to pay on no genuine and substantial grounds, it should not be able to avoid the statutory demand. The law should be allowed to proceed and if demand is not met and an application for liquidation is filed under Section 439 in reliance of the presumption under Section 434(1)(a) that the company is unable to pay it debts, the law should take its own course and the company of course will have an opportunity on the liquidation application to rebut that presumption.
25. An examination of the company's solvency may be a useful aid in determining whether the refusal to pay debt is a result of a bona fide dispute as to the liability or whether it reflects an inability to pay. Of course, if there is no dispute as to the company's liability, it is difficult to hold that the company should be able to pay the debt merely by proving that it is able to pay the debts. If the debt is an undisputedly owing, then it should be paid. If the company refuses to pay, without good reason, it should not be able to avoid the statutory demand by proving, at the statutory demand stage, that it is solvent. In other words, commercial solvency can be seen as relevant as to whether there was a dispute as to the debt, not as a ground in itself, that means it cannot be characterised as a stand alone ground."
It is undisputed that the transaction between the parties continued for several years. The agreement provides the deposit of money in the bank account after deduction of the commission, taxes and other expenses. It is not an allegation of the petitioning- creditor that the Company has violated any of the terms and conditions embedded in the agreements. The termination came because of the change in the policy and it cannot be said at this stage that the remedy of the Company is not available in seeking the damages for illegal and wrongful termination. The Company has approached the Bombay High Court by filing the civil suit for recovery of money on account of damages though there has been some admission on the part of the Company for such an amount payable to the petitioner but the same has been adjusted against the claim made in the said suit. The adjustment of an amount when the claim made is much more, is not impermissible under the law. It does not invite the Company Court to pass an order for winding up of the Company as the liability is admitted. The Andhra Pradesh High Court in case of Smt. Vijayalakshmi -v- Hari Hara Ginning & Pressing reported in (1999) 96 Company Cases 723 held:
" Thus, even if a part of the liability is admitted, that itself will not constitute an admitted amount due which a company is unable to pay nor can it be inferred that the company's liabilities are more than its assets and the Company is not able to discharge its liability or it requires the protection of the debtors by admitting the company petition for liquidation. Thus, we find no ground to interfere with the order of the learned single Judge in order to come to a conclusion that the summary proceedings under section 433 be initiated to admit the petition for winding up."
Reliance can further be placed to a judgment rendered by Madhra Pradesh High Court in case of State of M.P. -v- Raja Balbhadra Singh reported in AIR 1964 MP 231 on the above proposition of law and it would be apt to extract and quote paragraph 4 & 7 therefrom which reads thus:
" Where two persons have certain accounts and monies are payable by each to the other, they are both entitled to mutual adjustments of the monies provided they are really due and recoverable. The distinction between payment and adjustment is that payment is made to the creditor while the adjustment is made by the debtor himself. Although it is not called 'payment' in common parlance yet it undoubtedly partakes the character of payment. At all events, it cannot be called a claim for set off, nor can it be said to be a counter-claim, as the defendant does not seek enforcement of his claim, and, therefore, Court-fee is not due."
"On a general principle a person is entitled to pay to himself that amount which is due to him from another if he has in his hand monies belonging to that other, provided that his dues are legally recoverable. Although that question will be adjudged by the Court of law when it arises, he is not obliged to sue for the recovery of the money which he is already in possession of."
Therefore, the plea of adjustment is not unrecognized in law provided the amount for which it is adjusted is legally sustainable and/or recoverable. It is essentially a question of evidence and the winding up petition should not be allowed as the liabilities are admitted. Furthermore, the petitioning-creditor have made a counter-claim including the amount admittedly adjusted against the claim made in the suit which cannot be said to be unreal, undisputable and moonshine.
The Company has raised a bona fide defence and the parties have already approached the Bombay High Court making claim and counter-claim and, therefore, this Court does not find that it is such an open and shut case where the Company appears to be commercially insolvent and there is no reasonable cause or excuse to pay its debts. The Company petition shall remain permanently stayed.
However, there shall be no order as to costs.
Urgent photostat certified copy of this judgment, if applied for, be supplied to the parties subject to compliance of all requisite formalities.
(Harish Tandon, J)