Madras High Court
Rediffusion - Dentsu, Young And Rubicam ... vs Solidaire India Limited, Represented ... on 13 September, 2002
Equivalent citations: [2003]114COMPCAS721(MAD), 2003(1)CTC74
Author: P. Sathasivam
Bench: P. Sathasivam
ORDER P. Sathasivam, J.
1. Petitioning creditor has filed the above Company Petition under Section 433 (e) and (f) read with Section 434 and 439(1)(b) of the Companies Act, 1956 to wind up the respondent company.
2. The case of the petitioner is briefly stated hereunder: The respondent is Solidaire India Limited, a company having an authorised share capital of Rs. 10 Crores consisting of 1 Crore equity shares of Rs. 10 each. The issued, subscribed and paid-up capital of the respondent is Rs. 654.26 Lakhs. The objects of the respondent company are to manufacture and sale of black and white and colour Television Sets, manufacture of sub-assemblies and electronic tuners, and marketing audio and video products, etc. The respondent appointed the petitioner by its letter dated 11.4.94 as its exclusive advertising agency. Pursuant to the said letter of appointment, the petitioner provided advertising services to the respondent including advertising in Newspapers, Television, Radio, Creative Art Work, Film Production, Market Research and Conference, etc. to the satisfaction of the respondent. In respect of advertising services rendered to the respondent between October, 1994 and July, 1995 a sum of Rs.74,79,213-81 as on 31.3.96. was due and payable by the respondent. The respondent is also liable to pay interest from 1.4.96 as per the bills raised by the petitioner. When the petitioner approached the respondent, they expressed their inability to make payments, however, agreed to discharge their liability through the mode of bills of exchange. Since the respondent failed to honour bills of exchange, the petitioner's bank refused to discount further bills of exchange accepted by the respondent. By letter dated 27.11.95 the respondent admitted part of its liability to the extent of Rs. 60,58,282.95. The petitioner has filed a Civil ,Suit in C.S. No. 334 of 1996 on the file of the Original Side of this Court for recovery of the amount due to the petitioner and the said civil suit does not bar the filing of the present company petition.
Though the respondent has filed a written statement in the said suit, there is no valid or just defence to the suit claim. The letter dated 27.11.95 given by the respondent admitting in part its liability to the extent of Rs. 60.58 lakhs has been admitted by the respondent. The amount due from the respondent is a liquidated sum about which the respondent does not have any valid or just defence or dispute whatsoever. The petitioner caused a statutory notice under Section 434 of the Companies Act, 1956 to the respondent on 21st December, 1996. The respondent has received the same on 26.12.96, but has failed to make any payment despite the expiry of a period of 21 days after receipt of the notice. In the reply dated 10.1.97 sent through its advocate, the respondent specifically denied its liability. The respondent company is in an adverse financial position as evidenced by its annual accounts.
It is just and equitable and in the interest of the creditors of the company that the respondent company may be wound up. The respondent company has stopped its manufacturing activities and has become commercially insolvent and cannot carry on business. Winding up of the respondent company is the best course in the facts and circumstances of the case and in the interest of the general body of creditors and shareholders.
3. The respondent company has filed a counter statement disputing various averments made by the petitioner. The defence taken in the counter statement are briefly stated hereunder: The respondent is not a creditor of the petitioner. There is no debt due and payable to the petitioner within the meaning of the debt under the provisions of the Companies Act, 1956. The petitioner has not neglected to pay the amount and the company petition is an abuse of process. Even according to the petitioner, the respondent is only an agent of the principal and the respondent cannot be sued in view of the provisions of Section 230 of the Contract Act. In any event, having filed a civil suit on the file of this Court in C.S. No. 334 of 1996, it is a matter to be decided in that suit. There is a bona fide dispute in relation to the claim made by the petitioner in the petition. In order to promote the sale of the products, the petitioner herein was appointed as an advertising agent and it was specifically mentioned that the. activities will be carried on by the petitioner only with the written approval of the directors of the respondent company. The petitioner herein was appointed, as an advertising agent for Grundig Products. The respondent was not the beneficiary as alleged and it was only Grundig Electronics India Private Limited who were the beneficiaries for the services rendered by the petitioner. The petitioner herein has to work- out their remedies only in the said suit filed by them.
4. In the light of the above pleadings, I have heard Mr. A.L. Somayaji, learned senior counsel for the petitioning creditor and Mr. T.K. Bhaskar for respondent company as well as Mr. J. Nityanandam for Official Liquidator.
5. The only point for consideration in this company petition is whether the respondent company is to be wound up as claimed by the petitioner?
6. The petitioning creditor has filed the above Company Petition against the respondent company mainly on the ground that the company is unable to pay its debts and it is just and equitable that the company should be wound up. It is the case of the petitioner that the respondent appointed the petitioner by its letter dated 11.4.94 as an exclusive advertising agency for Grundig Products from the respondent to the petitioner. The said letter states that all bills sent by the petitioner would be paid by the respondent in 60 days. It is also the case of the petitioner that the respondent is liable to pay a sum of Rs. 74,79,213-81 towards advertising service charges for the period between October, 1994 and July, 1995 and the same was due as on 31.3.96. The petitioner also relies on a letter of the respondent dated 27.11.95 admitting their liability. Mr. A.L. Somayaji, learned senior counsel for the petitioner, by pointing out the said letter would contend that inasmuch as the respondent had admitted part of their liability, and they are unable to pay the same, the respondent company has become commercially insolvent and in the interest of the general body of the creditors and the share holders and the same has to be wound up. On the other hand, Mr. T.K. Bhaskar, learned counsel for the respondent company, would contend that inasmuch as the petitioner has already filed Civil Suit 334 of 96 before the Original Side of this Court claiming the very same amount and in the light of the stand taken by the respondent disputing the claim, the company petition, is not maintainable and liable to be dismissed. It is also stated that inasmuch as. the respondent is only an agent of Grundig company, in view of bona fide dispute and in the light of the pendency of the civil suit, the only remedy for the plaintiff is to establish their claim in the suit.
7. Though Mr. A.L. Somayaji, learned senior counsel for the petitioner heavily relied on an order of Board for Industrial and Financial Reconstruction (BIFR) dated 1.10.97 and an order of Appellate Authority for Industrial and Financial Reconstruction, New Delhi (AAIFR) dated 28.2.2002, namely, that Solidaire India Limited is too heavily indebted, admittedly challenging the order of AAIFR dated 28.2.2002, has filed a writ petition in CW.3314 of 2002 before the High Court, Delhi. It is further seen that by order dated 14.8.2002 in C.M. 8063 of 2002 in C.W. 3314 of 2002, the Delhi High Court has stayed the operation of the AAIFR dated 28.2.2002. In such a circumstance, the observation/conclusion of BIFR and AAIFR cannot be looked into till the disposal of the writ petition before the Delhi High Court.
8. Now I shall consider the plea taken in C.S.No.334 of 1996 and the defence, of the respondent company therein. The petitioning creditor has filed the suit (C.S. 334 of 1996) against Grundig International Marketing and Sales, Germany as first respondent; Grundig Electronics India Private Limited, Madras-34 as second respondent; and Solidaire India Limited., Madras-20 as third respondent. The third defendant in that suit is the respondent in this Company Petition. In the plaint, the petitioner/plaintiff has stated that in the month of April, 1994 the third defendant represented to the plaintiff that it was the agent of the first defendant-company, the manufacturers of the world famous Grundig Televisions and other products, that it was acting on its own behalf as well as on behalf of the first defendant. It is the definite case of the plaintiff that the third defendant acted for itself and as the agent of the first defendant for all the suit transactions. As rightly argued by the learned counsel for the respondent, there is no proof of acceptable document in support of such claim in the company petition. In paragrpaph 18 of the plaint, it is stated that the third defendant company had an agreement with the first defendant company. The third defendant company was acting as the agent of the first defendant company in its own name and was also acting on its own behalf. After that, the first defendant incorporated the second defendant company as its subsidiary and the second defendant started acting on behalf of the first defendant at Madras, and India and also acted on its own behalf. It is further stated that on instructions from the defendants, the plaintiff raised all the bills on the third defendant company. According to the plaintiff, the second defendant company, it is also relevant to refer para 25 of the plaint wherein it is stated that "On 27.11.1995, the third defendant wrote the Chartered Accountants of the plaintiff admitting their liability stating that as per their books, a sum of Rs. 60.58 Lakhs was due by them to the plaintiff. Having clearly admitted their liability the defendant are liable to the plaintiff." In para 30 of the plaint, it is stated "...The advertisement campaigns, the budgets and the plans etc., were always discussed with the representatives of the first defendant-company. The plaintiff is giving below a sequence of meetings where the personnel from the first defendant-company were directly involved...." In para 32, it is stated that "..The first defendant was the principal and the second and the third defendants were acting not only as the agents of the first defendant but also on their own behalf in their independent capacity....". In .para 33, it is stated that "...The third defendant company had an agreement with the first defendant company. Initially the plaintiff acted on the instructions of the representatives of the first and third defendants and later on the instructions of all the defendants..." The above pleadings would clearly show that the petitioner-plaintiff has made a claim not only against the third defendant (respondent herein), but also against all the defendants including the defendants 1 to 3 namely Grundig company.
9. It is also relevant to note the written statement filed by the third defendant (respondent in this company petition). In para 13 it is specifically stated that "...It is true that this defendant wrote the letter dated 27.11.95 referred to in para 25 of the plaint. This was a letter written by this defendant to the Chartered Accountants. It was not an admission of liability. The amount mentioned therein was the amount due at that time namely 27.11.95.
By stretch of imagination could that letter be understood to be an admission on the part of this defendant...".
10. A perusal of the plaint averments clearly show that the plaintiff has laid the suit claim not only against Solidaire India Limited but also its principal namely Grundig International Marketing and Sales as well as Grundig Electronics India Private Limited. I have already referred to the specific stand taken in the written statement by the defendant/respondent in the company petition. All these averments lead to an irresistible conclusion that triable issues are involved and there is a bona fide dispute. In such a circumstance, as rightly contended by the learned counsel for the respondent, suit alone is the proper remedy and in the light of tendency of C.S. No. 334 of 1996, it is for the plaintiff to establish their right in the said suit. Though the learned senior counsel for the petitioner has very much relied on the admission of the respondent as evidenced in their letter dated 27.11.95, even on 10.1.97 the respondent through their counsel sent a reply denying all the allegations contained in their notice dated 27.12.96 and also referred to C.S. 334 of 1996 all the written statement filed by them. In such a circumstance, in the absence of primary documents and statement of account, the only remedy for the petitioner is to establish their claim in their suit. I am satisfied that inasmuch as the petitioner had already resorted to C.S. No. 334 of 1996 far recovery of the debt, the machinery for winding up could not be allowed merely as a means for realising the due from the company. It is useful to refer a decision of the Punjab and Haryana High Court in S.T.C. of India v. Punjab Tanneries, 1989 (66) Com. Cases 634. The learned Single Judge of the Punjab and Haryana High Court, after referring to a decision of the Apex Court in Harinagar Sugar Mills Co. Ltd., v. Pradhan, 1966 (36) Com. Cases 426, has held that "the petitioner was not entitled, ex debito justitiae, to an order winding up the company, on the mere plea, that the debt was not paid. The petitioner had already resorted to a civil suit for recovery of the disputed debt. The machinery for winding up could not be allowed merely as a means for realising a debt due from the company."
11. Learned counsel for the respondent by drawing my attention to a decision of the High Court of Delhi in Rishi Pal Gupta v. S.J. Knitting and Finishing Mills (P) Ltd., 1994 (1) Com. L.J. 343 (Delhi) would contend that in a running account each and every entry in the books of account shall have to be proved. In the said decision, a learned Single Judge of the Delhi High Court has held that if the petition is based on the running account between the parties, and in the absence of positive proof regarding each and every entry in the books of account, the appropriate remedy is not winding up of petition but a suit. In our case, I have already referred to the fact that the petitioner has neither filed primary documents nor the statements of accounts to substantiate the claim amount.
12. It is useful to refer a decision of the Kerala High Court in J. Benarsidas v. South India Saw Mills (P) Ltd., 1975 (45) Com. Cases 273 wherein a learned Single Judge has observed that although a winding up petition is a proper remedy, and a mode of execution against a company unable to pay its debts, it is not an alternative to the ordinary procedure for the realisation of the debts due by a company. He further observed that even where the power to wind up exists, its exercise is governed by considerations of propriety. The Court may, if there are sufficient counter-balancing equitable grounds, deny an immediate winding-up order, or, in appropriate cases, even refuse it altogether in spite of the proved inability of a company to pay its debts. Exercise of such discretionary power must necessarily be governed by justice and equity. I am in respectful agreement with the view expressed by the learned Judge and the said conclusion is applicable to the case on hand.
13. It is also .the definite case of the respondent that it acted only as an agent. If that is so, in view of Section 230 of the Contract Act, the principal alone is liable, it is also relevant to note that in C.S .No. 334 of 1996 filed by the petitioner herein, the principal as well as the agent are parties. In such a circumstance, the petitioner has to establish their claim only in the suit.
14. In the light of what is stated above, I am satisfied that there is a bona fide dispute in relation to the claim made by the petitioner in the petition. In view of the pendency of C.S. No. 334 of 96, it is a matter to be decided in the said proceedings. I have already extensively referred to the plaint averments and the defence taken in the written statement in C.S. 334 of 1996. I have also referred to the specific stand of the respondent that it is only Grundig Electronics India Private Limited who had agreed to make the payment. The fact that the company is unable to pay its debts, does not necessarily entitle the Court to order winding-up of the company as the discretion to pass such, an order, even in the case of the inability of a company to pay its debts by Section 3, vested in the Court. That being the legal position, the petitioner having resorted to a civil suit for recovery of the debts I hold that the machinery for winding up will not be allowed merely as a means for realising a debt due from the company. Likewise, I have also held that there is a bona fide dispute about the existence of a debt and triable issues are involved; hence the proper remedy for the petitioner would be to establish their claim in the suit.
15. In the light of what is stated above, I do not find any merit in the Company Petition and the same is dismissed. No order as to costs.