Calcutta High Court
Isha Distribution House Pvt. Ltd vs Aditya Birla Faashion & Retail Ltd on 29 July, 2016
Author: Indira Banerjee
Bench: Indira Banerjee, Sahidullah Munshi
ORDER SHEET
A.C.O. No. 87 of 2016
A.P.O.T. No. 241 of 2016
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Jurisdiction
ORIGINAL SIDE
ISHA DISTRIBUTION HOUSE PVT. LTD.
Versus
ADITYA BIRLA FAASHION & RETAIL LTD.
BEFORE:
The Hon'ble JUSTICE INDIRA BANERJEE
-And-
The Hon'ble JUSTICE SAHIDULLAH MUNSHI
Date : 29th July, 2016.
For Appellant : Mr. Pratap Chatterjee, Sr. Adv.
with Mr. Mainak Bose, Mr. Ankur Jain &
Mr. Amitabh Roy, Advs.
For Respondent : Mr. Ratnanko Banerjee, Sr. Adv.
with Mr. Kumarjit Mookherjee, Mr. D. Basu Mullick, Mr. Soumya Roy & Mr. S. Saha, Advs.
This appeal is against an order dated 7th June, 2016 passed by the learned Company Court whereby the winding up petition filed by the respondent petitioning creditor against the appellant company has been admitted for a principal sum of Rs.97.18 lakhs together with interest thereon at the rate of 6% per annum to be calculated from the date of the statutory notice till actual payment.
2
The learned Company Court directed that if the appellant company paid off the entire amount of Rs.97.18 lakhs together with interest within a period of 12 weeks from the date of the aforesaid order, the winding up petition would remain permanently stayed. In default, the winding up petition would automatically stand revived and would be advertised in the newspapers specified in the order under appeal.
It appears that by a letter dated 3rd November, 2015, the respondent petitioning creditor claimed that a sum of Rs.4,31,28,986/- was due and payable by the appellant company to the petitioning creditor. The aforesaid letter/notice dated 3rd November, 2015 was addressed to the Directors of the appellant company at Patna. No notice was served on the company at its registered office at Kolkata.
Section 434(1) of the Companies Act, 1956 provides as follows -
"434. (1) A company shall be deemed to be unable to pay its debts -
(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for 3 three weeks thereafter neglected to pay the sum, or to secure or compound for it to be reasonable satisfaction of the creditor;
(b) if execution or other process issued on a decree or order of any Court in favour of a creditor of the company is returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company."
Under Section 434, a company is to be deemed to be unable to pay its debts if a creditor to whom the company is indebted in a sum exceeding Rs.500/- then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor [Section 434(1)(a)]. Under the aforesaid section, a company may also be deemed to be unable to pay its debts, if execution or other process issued on a decree or order of any Court in favour of the creditor of the company 4 is returned unsatisfied in whole or in part [Section 434(1)(b)]. In this case, there is no decree or order of any Court and Section 434(1) is not attracted.
Under Section 434(1)(c) a company may also be deemed unable to pay its debts if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and in determining whether a company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company.
May be, as argued by Mr. Ratnanko Banerjee, learned Senior Counsel appearing on behalf of the respondent petitioning creditor, the letter of demand was replied to and there was acknowledgement of liability to the extent of Rs.97 lakhs and odd. However, acknowledgement of liability in itself does not necessarily mean that a company is unable to pay its debts. A company may even wilfully default in making of a debt, in which case, it cannot be deemed that the company is unable to pay its debts, unless there is a notice served on the company at its registered office as per the requirement of Section 434(1)(b). At the cost of repetition, it is reiterated that there was no notice on the company at its registered office in Kolkata. This is evident from the notice relied upon by the respondent petitioning creditor, annexed to its winding up petition.
May be, the company is unable to pay its debts. The inability of the company to pay its debts would necessarily have to be proved to the 5 satisfaction of the Court and in determining whether a company is unable to pay its debts, the Court is required to take into account the contingent and prospective liabilities of the company.
In this case, it appears that the order admitting the winding up petition was passed on the day the winding up petition was moved, without calling for affidavits. From the order under appeal it does not appear that the question of contingent and prospective liabilities of the company was taken into account. Rather the learned Company Court proceeded on the basis that there was an acknowledgement of liability on the part of the company. Acknowledgement of liability in itself does not conclusively establish that the company is unable to pay its debts.
In Motilal Agarwal vs. Diabari Tea Company Limited reported in (2005) 128 Company Cases 672, a Single Bench of this Court held:
"11. To maintain a winding up petition a creditor has to show that he has a just debt due which the company is unable to pay. The company is deemed unable to pay in case notice under section 434 is given at the registered office of the company and the company has failed and neglected to pay such sum within 21 days from the date of receipt. Such presumption of insolvency is a rebuttable one and the company is entitled to rebut such presumption by raising a bona fide dispute. In the instant case the petitioner admittedly served notice at a place which was not the registered office of the company. Hence, the petitioner was not entitled to take the plea of deemed insolvency 6 under section 434 of the said Act. Hence, the plea that there had been an appropriate notice served by the petitioner was not tenable and the single Bench decision of this Court reported in [2000] WBLR 256 was not a good law and with all humility I am unable to agree with his Lordship."
This judgement is of no assistance to Mr. Banerjee since the Court held that the petitioner had admittedly served notice at a place which was not registered office of the company and hence, the petitioner was not entitled to take the plea of deemed insolvency under Section 434 of the Companies Act.
In Bukhtiapur Bihar Light Railway Co. Ltd. Vs. Union of India & Anr. reported in AIR 1954 Calcutta 499 : (1954) 24 Company cases 507, a Division Bench of this Court considered the affidavit that had been filed and held that even assuming that the Company had deliberately been avoiding or delaying payment, that was not a case of inability to pay, but a case of the Company failing and neglecting to pay. From paragraph 35, it appears that the application for winding up made by the Union of India was dismissed.
In Luxmi Industrial Gases Private Limited Vs. Punjab Chemi Plant International Ltd. reported in (2001) 103 Company Cases 429, a Single Bench found on facts that the notice, though not addressed to the Company in that case, had been addressed to its Managing 7 Director. The Single Bench held that it might be true that notice ought to be addressed to the respondent Company and not to the Managing Director but that would matter if the receipt of the notice on the respondent Company was not proved or not admitted. First of all, in the aforesaid case the notice was served on the registered office. In this case notice has been served in Patna. No notice has been served at the registered office which is in Kolkata. Even otherwise we are unable to agree with the view that notice addressed to the Managing Director would amount to substantial compliance of Section 434(1)(a). The statute clearly contemplates service on the Company and at its registered office for attraction of the deeming provision of the Company being unable to pay its debts.
For reasons already discussed above and, in particular, the reason that refusal to pay, failure to pay and inability to pay are not the same, we are unable to agree with the judgement of the Division Bench of Madras High Court, in Sheela Rani Textiles Limited Vs. Sri Anjaneya Cotton Mills Private Limited reported in (2012) 169 Company Cases 8.
As observed above, no statutory notice having been served on the Company at its registered office, Section 434(1)(a) is not attracted. The Company cannot be deemed to be unable to pay its debts. It may 8 still have been possible for the respondent petitioning creditor to prove that the Company was unable to pay its debts, but the issue would necessarily have to be decided on affidavits.
We, therefore, remit the winding up petition to the learned Company Court for fresh adjudication upon affidavits.
Affidavit-in-opposition be filed within three weeks from date. Affidavit-in-reply thereto, if any, be filed within two weeks thereafter. Liberty to mention before the Company Court.
The order under appeal is set aside.
The appeal is disposed of along with the connected application.
(INDIRA BANERJEE, J.) (SAHIDULLAH MUNSHI, J.) K. Banerjee & C. Sinha A.Rs. [C.R.]