Madras High Court
Iocee Exports Ltd. vs Sterling Computers Ltd. on 14 June, 2002
Equivalent citations: [2003]44SCL572(MAD)
JUDGMENT
1. The company petition has been filed for winding up of the respondent-company under the provisions of Sections 433(3) and (8) and 439 of the Companies Act, 1956. The name of the respondent-company, as seen from the memo filed by the respondent-company dated 10-8-2000, has been changed from M/s. Sterling Computers Ltd. to M/s. Essar Teleholdings Limited with effect from 27-11-1997. Accordingly, the name of the respondent-company in the cause title shall stand amended substituting the name M/s. Essar Teleholdings Limited.
2. The case of the petitioner is that the respondent-company has been established for the manufacture, sale and purchase of computers and accessories and its authorised capital is Rs. 50 crores made up of 5,00,00,000 equity shares of Rs. 10 each and its paid up capital is Rs. 5 crores made up of 5,00,00,000 equity shares of Rs. 10 each in which calls in arrears are to the extent of Rs. 4,500. It is stated that the respondent-company issued a letter dated 5-11-1993 requesting the petitioner for arranging intercorporate deposits on the terms mentioned therein and the petitioner was providing loans from 8-11-1993 to 8-12-1993 by way of cheques and pay orders. According to the petitioner, there was a mutual and running account and after giving credit to the payments made by the respondent, the respondent was liable to pay a sum of Rs. 34,95,350 as on 31-7-1997. It is stated that a periodical statement was sent to the respondent and the last payment made by the respondent was a sum of Rs. 5,00,000 on 22-10-1994. It is stated that the petitioner sent various reminders and in spite of the same, the respondent has not paid the money and the respondent was indebted to the petitioner a sum of Rs. 34,95,350 as on 31-7-1997, It is also stated that the respondent-company was in continuous correspondence with the petitioner from 8-11-1993 requesting for deposits and the respondent also wrote letters to the petitioners on 8-11-1993, 17-11-1993, 11-5-1994, 18-8-1994 and 21-10-1994. It is also stated that the petitioner maintained the balance on the basis of the agreement dated 5-11-1993 and debited the respondent-company with interest and service charges on appropriate dates and was sending statement of accounts to the respondent-company. It is stated that the respondent has never disputed the statement of accounts sent by the petitioner. It is stated that initially the respondent was prompt and regular in payment and paid a sum of Rs. 1, 25, 100 and appropriate credit was given to the respondent-company. It is stated that several cheques issued by the respondent for interest and service charges were dishonoured and returned and the petitioner refers to the cheques for a sum of Rs. 41,700 each which were returned on 9-1-1994 and 10-1-1994. It is stated that the respondent also issued cheques for a total sum of Rs. 30,00,000 which were also returned and dishonoured. It is therefore stated that the financial position of the respondent-company is in precarious condition and it is not in a position to pay the debt. The petitioner refers to its various letters dated 15-4-1994, 15-7-1994, 14-8-1994, 16-9-1994, 19-10-1994, 28-12-1994, 28-6-1995, 31-7-1995, 28-6-1996 and 30-10-1996 calling upon the respondent to settle the account and pay the intercorporate deposit with interest to the petitioner, It is stated that the account of the respondent-company was maintained as a running and mutual account and all moneys paid were given credit to and all interest and service charges were debited to the respondent as per the agreement dated 5-11-1993. It is therefore stated that the respondent is due to pay a sum of Rs. 33,82,598 and in spite of the statutory notice, the respondent has not paid the money. Therefore, the petitioner has filed the petition for winding up of the respondent-company on the ground that the respondent has failed to make payment even after the issue of statutory notice and the financial position of the respondent is not sound and the respondent is unable to meet its obligations as and when they fall due. Therefore the respondent-company should be ordered to be wound up.
3. At the time when the matter came up before this Court, the company petition was admitted and notice was ordered and the respondent filed a counter affidavit. According to the respondent, the petitioner has agreed to provide an accommodation to the respondent by way of a temporary financial accommodation to the extent of Rs. 30 lakhs in November 1993 and the said sum was received by the respondent on various dates between 8-11-1993 and 17-11-1993 and the entire sum was repaid on 9th, 10th and 15th December, 1993 in three instalments of Rs. 10 lakhs each. It is stated that the subsidiaries of the petitioner company, namely, M/s. GTL Exports Private Limited and M/s. Season's Exports Private Ltd. raised debit notes under the head, 'service charges' for a sum of Rs. 1, 25, 100 which were also paid by the respondent. It is stated that there was no understanding for any further payment by the respondent to the petitioner, nor was there any further sum due by the respondent to the petitioner. It is also stated that the respondent required a further sum of Rs. 30 lakhs which was paid by the petitioner in the month of December 1993. It is stated that the entire sum of Rs. 30 lakhs was repaid on 20-4-1994. 18-8-1994, 21-9-1994 and 22-10-1994. It is further stated that there is no demand for payment of interest or service charges either from the petitioner or its subsidiaries as in the case of earlier intercorporate accommodation. It is stated that the transaction between the petitioner and the respondent was not commercial or business transaction either by way of loan or deposit, but a friendly accommodation of funds needed for business purposes. The respondent has set out the reasons for accommodation of the money paid to the respondent. The respondent denied the letter dated 5-11-1993 and stated that one K. Santhanagopalan signed the letter and he had no authority to sign the letter and Santhanagopalan resigned in the year 1996 from the respondent office and he is no longer in service of the respondent company. The case of the respondent is that the petition has been filed in the year 1997 after the change in the management of the respondent company in 1996 and the petition has been filed with mala fide intention and is motivated with an intention to gain an unfair advantage. The respondent denied that a sum of Rs. 34,95,350 is due and payable by the respondent to the petitioner. The respondent denied the correctness of the statements as erroneous. The main case of the respondent is that the petitioner has made demands after the change in the management with ulterior motive and the letter dated 8-11-1993 was secured after the resignation of K. Santhanagopalan and after the change in the management of the respondent company. The respondent denied that it is liable to pay interest and service charges and there is no agreement for the same. It is stated that the financial position of the respondent company is fairly sound and the respondent denied that any amount is due to the petitioner from the respondent. The respondent also enclosed a statement of accounts as per the books of account of the respondent company.
4. Mr. P. Viswanathan, learned counsel for the petitioner referred to the contents of the petition and also various documents and submitted that the respondent is still liable to pay the amount claimed in the petition, but the respondent has failed to pay the amount in spite of the statutory notice issued. Learned counsel for the petitioner referred to the letter dated 5-11-1993 wherein the respondent has agreed to pay interest. Learned counsel referred to the cheques which were dishonoured and submitted that the fact that the cheques were issued by the respondent itself clearly shows that the respondent has admitted the liability and the respondent has raised a dispute only for the purpose of defending the company petition after admitting the liability. Learned counsel referred to various letters issued by the petitioner demanding interest and the respondent has not denied the demand of interest made by the petitioner. Mr. Viswanathan, learned counsel also referred to the statement of accounts of the petitioner and submitted that the statement of accounts clearly shows that a sum of Rs. 34,95,350 was due and payable by the respondent as on 31-7-1997 and in spite of the demands made by the petitioner, the respondent has not paid the amount. Learned counsel also referred to the balance sheet of the respondent company and submitted that the financial position of the respondent company is not sound and it is liable to be wound up. Learned counsel further submitted that the objections raised by the respondent in the counter affidavit had not been raised at any point of time earlier and it is not a bona fide dispute and when the respondent has admitted the liability to pay interest by the issue of cheques, it is not now open to the respondent to deny that it is not liable to pay interest at all. Learned counsel submitted that the letter dated 5-11-1993 is a genuine letter and binds the parties and Santhanagopalan as General Manager of the respondent company entered into the transaction and it is not now open to respondent to dispute the letter dated 5-11-1993. Learned counsel submitted that the statement of accounts enclosed along with the notice reflects the transactions between the parties. Learned counsel submitted that the petitioner has sent a letter dated 20-12-1996, but there was no reply from the respondent. Learned counsel also submitted that cheques were issued for interest and by the issue of cheques the respondent has admitted the liability of the petitioner. Learned counsel submitted that though cheques were issued in the names of Subsidiaries of the petitioner, the cheques were issued on the basis of instructions given by the petitioner. Learned counsel therefore submitted that the respondent company is liable to be wound up as the respondent is liable and due to pay interest and the petitioner has made out a case for winding up of the respondent company.
5. Mr. V. Ramachandran, learned senior counsel appearing for the respondent submitted that there is no agreement to pay interest and the petitioner has not filed statement of accounts and the claim of interest is false. Learned senior counsel submitted that the respondent denied the letter dated 5-11-1993 as not genuine, and according to the learned senior counsel, only after the change in the management of the respondent company and after the resignation of Santhanagopalan, the letter was brought up by the petitioner and was filed for the purpose of the case. He submitted that Santhanagopalan had no authority to issue such a letter and the statement of accounts is also not genuine and the copy enclosed is not a copy of the true accounts and the petitioner has not produced the books of account and copies of confirmation has not been filed and the burden of the petitioner to prove that the respondent is liable to pay interest is not discharged. Mr. V. Ramachandran, learned senior counsel submitted that even assuming that service charges were paid by way of cheques issued in favour of M/s. GTL Exports Private Limited, no cheque issued by the respondent in favour of the petitioner was dishonoured and no amount is due to the petitioner and the amount claimed by the petitioner is false and untenable and the claim for interest is not borne of records. Learned senior counsel submitted that each entry has to be proved and none of the entries in the copy of statement is proved and it is not equitable to wind up the respondent company. His case is that the petitioner has not come with clean hands and on this account, the petition is liable to be dismissed.
6. I have carefully considered the submissions of Mr. P. Viswanathan, learned counsel for the petitioner and Mr. V, Ramachandran, learned senior counsel for the respondent. I find that there is force in the submission of Mr. V. Ramachandran, learned senior counsel regarding the claim of interest made by the petitioner. The petitioner has mainly relied upon the letter dated 5-11-1993 of the respondent addressed to the petitioner agreeing to pay interest the rate of 50% per annum on the deposit availed by it. The letter also sets out other terms of the intercorporate deposit. Mr. V, Ramachandran, learned senior counsel referred to the notice issued by the advocate on behalf of the petitioner dated 23-12-1996 wherein it is stated as under :--
"My client states that on 1-11-1993 you approached my client and requested my client to provide/arrange such corporate loans for them and you also further agreed to pay the appropriate interest and service charges for the arrangement of such loans. Under the terms agreed upon between you and my client, the above loans would be renewed every month and interest also would be paid every month."
The submission of Mr. V. Ramachandran, learned senior counsel is that had the respondent agreed to pay interest at the rate of 5096 per annum on the intercorporate deposit, a reference to appropriate interest in the notice issued would not arise.
7. His further submission is that in the letter dated 5-11-1993 there are no terms regarding payment of service charges at all. Learned senior counsel submitted that Santhanagopalan who was shown as General Manager (Finance) of the respondent company in the letter dated 5-11-1993 had resigned from the respondent company in the year 1996 itself and taking advantage of the change in the management of the respondent company, the petitioner has filed the petition. Learned senior counsel submitted that in the letters issued by the petitioner dated 15-4-1994, 15-7-1994, 14-8-1994, 16-9-1994, 19-10-1994, 28-12-1994, 28-6-1995, 31-7-1995, 28-6-1996 and 30-10-1996 the petitioner has not referred to the rate of interest. Learned senior counsel also points out that there is discrepancy in the signature of Santhanagopalan in between the letter dated 5-11-1993 and subsequent letters commencing from 8-11-1993. He also referred to the notice issued by the advocate of the petitioner dated 23-12-1996 and submitted that in the notice there is no reference to the letter dated 20-12-1996. His submission is that there is no proof for the despatch of the letters dated 15-4-1994, 15-7-1994, 14-8-1994, 16-9-1994, 19-10-1994, 28-12-1994, 28-6-1995, 31-7-1995, 28-6-1996. Insofar as the letter dated 30-10-1996 is concerned, his submission is that though it is stated that the letter was sent by Certificate of Posting, the respondent has not acknowledged or admitted the liability to pay interest. He also submitted that there is no provision for payment of service charges.
8. On consideration of the documentary evidence produced by the petitioner, I am of the prima facie view that had the respondent agreed to pay interest at 50% per annum on intercorporate deposit in the letter dated 5-11-1993, the employment of expression, 'appropriate interest' in the notice dated 23-12-1996 would not have been made. Further, there is no reference to the payment of service charges at all in any of the letters and the respondent has not acknowledged the letters and agreed to pay interest and service charges. In my view, the respondent has raised a bona fide dispute on the question of payment of interest and service charges.
9-10. Secondly, insofar as the reliance placed by the petitioner on the dishonour of cheques is concerned, the cheques produced by the petitioner were returned on 9-1-1994 and 10-1-1994 and those cheques were issued in the name of M/s. GTL Exports P. Ltd., a subsidiary of the petitioner. According to the petitioner, the cheques were issued in the name of the subsidiary only on the basis of instructions given by the petitioner. Therefore it is a matter of evidence whether there was any such instruction or understanding between the parties to issue cheques in favour of M/s. GTL Exports P. Ltd. towards payment of service charges and interest and whether any action has been taken by the said company against the respondent when cheques were dishonoured. Therefore it is a matter of evidence whether there is any connection between the dishonour of cheques issued in favour of a third party and the claim of interest and service charges on the intercorporate loan made by the petitioner. Further, it is also a matter of evidence how the cheques issued in favour of M/s. GTL Exports P. Ltd. were entered into the accounts of the petitioner and it is for the petitioner to establish by satisfactory evidence that the entries in the statement of accounts enclosed to the notice are correct and it is necessary for the petitioner to explain the entries in the statement of accounts.
11. Thirdly, the statement of accounts filed by the petitioner is a consolidated statement and there is no evidence produced by the petitioner to show that the respondent has confirmed its liability. The parties to the petition are companies and the petitioner has not produced any evidence to show that the petitioner was forwarding any memo seeking confirmation of liability and that the respondent has confirmed the liability. The petitioner has not produced the relevant account books and also not explained the entries found in the statement of accounts, that too, when the respondent denies its liability to pay service charges and interest. I am not expressing any opinion whether the petitioner is entitled to claim interest or service charges, but I am of the view that the defence raised by the respondent that it is not liable to pay either interest or service charges is a bona fide one and it is a substantial one. Further, when the respondent is disputing the existence of the debt, it cannot be stated that the defence lacks bona fide. I am of the view that when the respondent disputes the signature of Santhanagopalan in the letter dated 5-11-1993, it is for the petitioner to prove the disputed signature and also the terms of the intercorporate loan. It is also necessary for the petitioner to explain the authority of Santhanagopalan to issue the letter dated 5-11-1993 when his authority to issue the letter is disputed. The case of the respondent is that the respondent has repaid the principal amount of Rs. 30 lakhs and the only question is regarding payment of interest.
12. In Neg Micon v. NEPC India Ltd. 2000 CLC 1615 a Division Bench of this Court has held that where the debt is disputed on a bona fide ground and the defence is also substantial, the petition for winding up is not a proper remedy. This Court also held that the bona fide dispute of the liability has to be determined having regard to the conduct of parties, character of plea and circumstances of the case. This Court further held that where there is necessity to go into the authenticity of the documents produced in proof of the debt requiring examination and cross-examination of witnesses, the winding up of the company cannot be ordered. I hold that the decision in Neg Micon's case (supra) would squarely apply to the facts of the case.
13. Mr. V. Ramachandran, learned senior counsel referred to the decision of the Andhra Pradesh High Court in Bombay Glass Blowing Industries v. Bio Vaccines P. Ltd. [1999] 98 Comp. Cas. 174 where the Andhra Pradesh High Court held that the Company Court has no jurisdiction to pass an order directing payment of unascertained and indefinite amount of interest because it is the function of the Civil Court to award interest. I have already held that the claim of the petitioner of interest is disputed and the dispute is a bona fide and substantial one. I am not expressing any opinion whether the petitioner is entitled to claim interest on the basis of general law providing for payment of interest as it is for the Civil Court to determine the said question. Since the liability to pay interest and service charges is disputed on valid and bona fide grounds. I hold that the winding up petition is not a proper remedy.
14. Mr. V. Ramachandran, learned senior counsel also referred to the decision of the Delhi High Court in Rishi Pal Gupta v. S.J. Knitting & Finishing Mills (P.) Ltd., [1994] 1 Comp. LJ343 where the Delhi High Court referred to the provisions of Section 34 of the Indian Evidence Act and held that mere entries in the books of account are not sufficient to fix liability on any person and each and every entry in the books of account shall have to be proved. The respondent is disputing the claim of interest and it is for the petitioner to prove each and every entry in the consolidated statement of accounts produced by the petitioner. I am of the view, the proper remedy is not a winding up petition, but a civil suit.
15. The next decision relied upon by Mr. V. Ramachandran, learned senior counsel is the decision of Andhra Pradesh High Court in Smt. Vijayalakshmi v. Hari Hara Ginning & Pressing [1999] 96 Comp. Cas. 723 where the Andhra Pradesh High Court held that the proceedings under section 433 of the Companies Act are not substitute to the civil suit by creditors against the company. The Andhra Pradesh High Court also held that merely showing a debt in a balance sheet could not prima facie be termed as an acknowledgment in terms of the Limitation Act, 1963. On the facts of the case, the petitioner prima facie has not established that there was an agreement to pay interest and the petitioner has also not proved that there is admission of liability by the respondent to pay interest and service charges. The rate of interest is a matter of dispute, and in these circumstances, I am of the view that the winding up is not a proper remedy.
16. Though Mr. V. Ramachandran, learned senior counsel raised other points also against the maintainability of the company petition, in the view I have taken, it is not necessary to consider the same. I therefore hold that on the facts of the case, the proper remedy for the petitioner would be to file a civil suit and not the company petition. Accordingly, the company petition is dismissed. No costs.