Madras High Court
Tubecon Products P. Ltd. vs Arjun Technologies (I) Ltd. on 1 March, 2006
Author: Chitra Venkataraman
Bench: Chitra Venkataraman
JUDGMENT Chitra Venkataraman, J.
1. This petition is filed by one M/s. Tubecon Products P. Ltd. under Sections 433(e), 434(1)(a) and Section 439 of the Companies Act, 1956, praying for a direction to wind up the respondent-company and to appoint the official liquidator to take charge of the assets, properties, income and business of the respondent-company.
2 The grievance of the petitioner herein is that the respondent-company approached the petitioner for procuring orders in respect of sheeter project from Tamil Nadu News Print and Papers Limited. It is stated that the respondent were acting as agent on behalf of the German company by name M/s. ECH Wills Gmbh Nedderfelt at Hamburg, Germany. It is the definite case of the petitioner that pursuant to the discussion held between the petitioner and the respondent-company at Kolkata and Chennai, the petitioner was asked to liaise with TNPL on behalf of the respondent herein to initiate negotiations to procure the order. For the services rendered, it is stated that the respondent had agreed to compensate the petitioner an amount not exceeding 5 per cent, on ex-factory value of the equipment to be supplied by the respondent's principal from Germany.
3. The petitioner's contentions are that consequent on the efforts taken, TNPL has placed a purchase order on March 1, 2002, for the design engineering, and manufacture and supply of sheet cutter and online ream wrapping machine with labeller, spare parts including supervision of erection, start up and commissioning as per the terms and conditions stated in the purchase order. The total value of the equipment supplied by the respondent's principal from Germany to TNPL for the said sheeter project was to the tune of Euro 19,35,700. Paragraph 8 of the petition given the terms and conditions of the purchase order. The petitioner submits that the respondent issued a letter of confirmation on September 16, 2002, setting out the details of the schedule of payment and with reference to commission fee payable to the petitioner for the services rendered in procuring this order. It is seen that 5 per cent, on the ex-factory value of the equipment was to be paid at 40 per cent, on receipt of advance payment, 40 per cent, on receipt of LC payment after delivery and 20 per cent, after receipt of final payment and acceptance of equipment. Calculating on a total ex-factory value as per the terms, the petitioner quantified its commission at Rs. 52,36,390 calculated at the prevailing exchange rate. Goods were supplied on various dates between November, 2002, and November, 2003. The petitioner states that in spite of receipt of the sale consideration, the respondent had not kept up his promise giving 5 per cent, commission on the ex-factory value, as stated in their letter dated September 16, 2002. This resulted in a series of letters and reminders sent on various dates by the petitioner addressed to the respondent herein, referring to the various levels of discussion held with the respondent. The petitioner sent these letters with a copy marked to the principal company in Germany. Since, according to the petitioner none of these letters evoked any positive response, a statutory notice was issued on November, 2003, followed by a registered letter on February 18, 2005. However, these also did not receive any reaction from the respondent-company. Aggrieved by the same, the petitioner has come out with this application.
4. On notice from this court, the respondent has entered appearance.
5. In the course of his argument, Mr. Murari, learned Counsel for the petitioner drew my attention to the paper book filed in support of the claim made in the petition and referred a letter dated September 16, 2002, at page 52 in the paper book and submitted that the respondent-company had no inclination to comply with the promise undertaken to pay the commission at 5 per cent, on the ex-factory value of the equipment on the terms of 40 per cent, on receipt of advance payment, 40 per cent, on receipt of LC payment after delivery and 20 per cent, after receipt of final payment and acceptance of equipment and evaded such undertaking. Learned counsel submitted that the respondent-company cannot ride out of its commitment. The conduct of the respondent-company in not answering any of these letters sent, which are enclosed in the paper book, including statutory notice sent through the court, clearly showed the admission as regard the amount payable by way of commission at 5 per cent, on the services rendered. Learned counsel also submitted that the respondent cannot deny their status as agent of their principal in Germany. In the above circumstances, there exists a definite debt, which ought to have been honoured by the respondent-company. In view of the passive attitude in not giving reply to any of those letters including its statutory notice, learned Counsel submits that the petition submitted by the petitioner-company merits acceptance and that the prayer sought for can be granted.
6. In support of his claim, learned Counsel also relied on the decision of Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd. and invited my attention to paragraph 21 at page 638 and submitted that where there is definite debt and the defence of the company is lacking in good faith, the petition filed by the petitioner merited acceptance by this court. Learned counsel placed reliance on the guiding principles laid down by the Supreme Court to the effect that (page 131):
... 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.
7. Learned counsel for the petitioner has submitted that in the context of the above statement of law, the letter dated September 16, 2002, was an admission by the respondent-company to pay 5 per cent, commission, that the respondent-company acted against good faith reposed on them by the petitioner-company in not respecting the undertaking or responding to their letters and that both on point of law and in fact, the petitioner is likely to succeed as regards the claim against the respondent-company. Hence, satisfying all the qualifications as stated in the Supreme Court decision, learned Counsel prayed for ordering the petition filed.
8. The respondent-company has filed objections to the claim of the petitioner-company. In the counter filed before this court, it is stated that the respondent was not an accredited agent of the said ECH Wills GmbH of Germany but only renders some services to the said organisation expecting to do business with the said organisation. The respondent submitted that there was no documentary proof to say that they are the accredited agent of the German company. It is submitted that they had a full-fledged factory carrying on business in manufacturing, assembling, fabricating, buying, selling, importing general and special purpose machinery.
9. Referring to the orders placed by the Tamil Nadu News Print and Papers Limited dated March 1, 2002, learned Counsel for the respondent submitted that the purchase order was placed by TNPL on the German company based on global notice inviting bids advertised by TNPL for sheet cutter and ream wrapping machine. In the context of the advertisement placed, the submission made by the petitioner that they were instrumental in procuring the purchase order from TNPL in favour of the German company is totally false. The respondent-company denied any involvement of the petitioner-company as regards this purchase order. The respondent also pointed out that the petitioner had not rendered any services as regards tender submitted by the German company. Referring to the letter dated September 16, 2002, learned Counsel for the respondent has submitted that the petitioner had mischievously read the letter in isolation without reference to the fax message dated June 25, 2002, by Hindustan Paper Corporation Limited of Kolkata. Taking me through the letter of the petitioner-company dated June 26, 2002, addressed to the respondent-company and enclosing the fax message, wherein, Hindustan Paper Corporation Limited had addressed the letter to the respondent-company, the respondent's counsel submitted that the letter dated September 16, 2002, on which heavy reliance was placed by the petitioner was referable to the one given in letter dated June 26, 2002, enclosing the letter from the Hindustan Paper Corporation Limited. Learned counsel for the respondent submits that the said letter dated September 16, 2002, on which the claim is now based was being misused by the petitioner-company, to make an unmerited claim as regards the purchase order dated March 1, 2002, placed on TNPL for the German company. Learned counsel further submitted that the fax message of Hindustan Paper Corporation Limited, Kolkata, was addressed to the respondent-company as regards arranging for administration for proper technical evaluation of the respondent-company's product. Hence, the document dated June 26, 2002, enclosing the fax message of Hindustan Paper Corporation Limited and the letter dated September 16, 2002, have to be viewed as one referable to Hindustan Paper Corporation Limited transactions and has nothing to do with the purchase order placed by TNPL. The respondent-company had also stated that they had no knowledge about the payment by TNPL on May 17, 2002, or aware of any letter of credit by TNPL. He is also not aware of the bill of lading referred to by the petitioner. In fine, the respondent's counsel has submitted that they had not received any payment from TNPL as alleged by the petitioner. As such, there is no question of failure and negligence on the part of the respondent-company in paying any commission.
10. The respondent-company thus viewed this attempt as a sheer harassment and the discussion referred to as purely a matter of imagination. Learned counsel for the respondent submitted that the letters addressed are highly motivated in creating some documentary evidence to support a false claim. Thus the services of the petitioner were never utilised for procuring the purchase order by TNPL on the German company, that the same was based on global tender. As such, the question of paying any commission to the petitioner never arose at any point of time.
11. The respondent-company also referred to the fact that they are profit making company and their reserves and surplus as on March 31, 2005, was more than Rs. 68 lakhs. Referring to this financial statements, the respondent has submitted that false statements were made just to gain an unlawful advantage. In these circumstances, the respondent prayed for rejection of the plaint.
12. Learned counsel for the respondent in the course of his argument, placed reliance on the submissions made by the petitioner particularly, with reference to the decision of the Supreme Court and submitted that in the absence of any unimpeachable evidence to warrant a finding that there was. a debt, owing to the petitioner-company and that the respondent failed and neglected to pay the debt, the petition was not maintainable in law at all.
13. Learned counsel for the respondent, referring to the decision of this court in Elmieh India v. Hi-sound Corder P. Ltd. [1995] 83 Comp Cas 135 and placed particular emphasis on the statement of law at page 141. Counsel further placed reliance on the decision of the Karnataka High Court in the case of Rhein Chemie Rheinau Gmbh v. Standard Oil Additive P. Ltd. [2005] 128 Comp Cas 13 to state that mere assertion of a debt payable is not sufficient to attract the discretion of the court. Learned counsel also placed reliance on the observation of the Karnataka High Court that the machinery for winding up would not be allowed to be utilized merely as a means for realising debts due from the company. The essence of the principle laid down is that a prima facie case must be made out by the petitioner, which the respondent-company should shoulder the onus of disproving it by showing that its defence is in good faith and one of substance.
14. Learned counsel for the petitioner also relied on the provisions of section 434 of the Companies Act and submitted that where the respondent failed to answer the statutory notice, a statutory presumption of a deemed inability to pay has arisen. Hence, invoking the presumption, the petition was to be allowed in favour of the petitioner.
15. Learned counsel for the respondent placed reliance on the decision of the case Haryana Telecom Ltd. v. Himachal Futuristic Communication Ltd. [2006] 133 Comp Cas 351 (infra) : [2006] 65 SCL 19 (HP) in support of the contention that a mere omission of reply to the statutory notice, could not mean that the respondent had admitted the liability. Learned counsel further submits that reliance placed on notice under Section 434 of the Companies Act was totally misplaced since it was only a rebuttable presumption and that the vital question to be decided is whether the respondent's case could be brought under the provisions of the Companies Act even for enforcing the deemed provisions contained under Section 434 of the Act to say that there exists a debt that the company is unable to meet. Therefore, unless and until a primary fact as regards the existence of a debt is proved, the question of granting the prayer does not arise.
16. In the context of the submission made by the respondent's counsel they never entered into an agreement on an occasion to give the petitioner-company a commission, as such, the question of debt arising itself is not there. In the circumstances, learned Counsel submitted that the petition is liable to be rejected.
17. A perusal of the document relied on by learned Counsel for the respondent and the petitioner, reveals that the basis of the claim of the petitioner-company rested on the purchase order by TNPL, alleged to have been processed through the petitioner-company. As rightly contended by learned Counsel for the respondent, TNPL, by global notice invited bids for sheet cutter and ream wrapping machine and there is no reference at all even in the letter addressed to the petitioner-company dated September 16, 2002, that 5 per cent, commission to be paid for the services was for the alleged finalisation of the contract from TNPL with the respondent-company's principal. It is also seen that nowhere it is stated even in the letter that the commission was payable on account of procuring an order for the principal in Germany. In the absence of any definiteness in the letter dated September 16, 2002, linking the order from TNPL with the German company through the petitioner-company, it is not possible to accept the contention of the petitioner herein that a debt had arisen on account of undertaking given in the letter dated September 16, 2002. Hence, factually, the claim of the petitioner is liable to be rejected.
18. On the question of status of the respondent-company as an agent of the German company, there is nothing on record to show that the respondent-company, however, acted as an accredited agent of the German company. The petition filed before this court, carries no reference, whatsoever, or the details as regards the status of the respondent-company as an agent nor offered any allegations that the respondent-company made the petitioner-company believe that they were accredited agent of the German company. There are absolutely no materials to show that on the assurance given by the respondent-company, the petitioner was led to the believe about the grant of commission for the services to be rendered, particularly, with reference to purchase order placed by TNPL. In any event, as I have stated in the earlier portion of this order, there is nothing to link the order placed by TNPL with the petitioner-company processing the same with the German company and the respondent-company acting as an agent of the foreign company.
19. In the letter dated September 16, 2002, relied on by the petitioner-company found in page 52 of the typed set of papers, there is no reference whatsoever as regards any of these contentions taken to be a basis for the claim. In the absence of any details therein, considering the fact that there were prior correspondence as regards a similar order placed by Hindustan Paper Corporation Limited, and the letter from the petitioner dated June 26, 2002, it is difficult to accept the plea of the petitioner herein and I am constrained to hold that in the absence of the details, the said letter alone cannot be taken as one recognising the claim for 5 per cent. Thus, leading to the filing of this petition.
20. As regards reliance placed by learned Counsel for the petitioner on the decision of Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd. even by the standards, given in paragraph 21 at page 638, the claim of the petitioner has to fail. The respondent-company has adduced necessary proof of its defence, in contrast to the total lack of proof as regards the claim made by the petitioner-company. In view of the disputed facts herein, the contention put forth by the petitioner cannot be accepted as a prima facie proof of the facts on which the petition stands.
21. The decision relied on by learned Counsel for the respondent reported in Haryana Telecom ltd. v. Himachal Futuristic Ltd. [2006] 65 SCL 19 (HP) is well founded. Going by the tenor of the provisions of the Act, one can say that Section 434 of the Companies Act raises a mere rebuttable presumption arising on the statutory notice not replied to by the respondent. If the deemed fiction as provided under Section 434(1) of the Companies Act, is to be taken as irrebuttable one, then the question of further provisions regarding notice and other follow up action would never arise. The court has to arrive at a conclusion that there exists a debt, which the respondent is liable to pay, but which the respondent had neglected to pay. But where there is a bona fide dispute, the statutory presumption that the company had neglected to pay on receipt of the statutory notice, would not enure to the benefit of the petitioner-company herein, to order a winding up, but would have to give way for the disputes to be resolved through remedies other than the one available under the Companies Act. When there is no lacking of bona fides in the counter, even if there be a debt and there are means to pay, which the respondent-company is bound to pay, it may be stated that the issues are not one deserving the intervention of the court in company jurisdiction. This will hold good even with greater force to a case of no debt, wherein, in the bona fides or otherwise of the conduct of the respondent-company, bear no relevance for consideration by the court exercising jurisdiction under the Companies Act. The decision of the Supreme Court Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd. was considered by the Supreme Court in the case of Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro Chemical Ltd. [1994] 79 Comp Cas 835 wherein the Supreme Court considered the expression "unable to pay its dues" under Section 433(e) of the Companies Act and held that the said phrase has to be understood in a commercial sense that the provisions for winding up are not to be set in motion, merely as a means for realising the debt, particularly, when the company against whom such provisions are invoked are profit making organisations with sound financial position.
22. In the decision reported in Mediqup Systems P. Ltd. v. Proxima Medical System GmbH [2005] 124 Comp Cas 473 the apex court held that there must be a debt and the company must be unable to pay the debt. The debt under Section 433 of the Companies Act must be a determined on a definite sum of money and where the debt is the subject of a bona fide dispute and the defence is a substantial one, the court will not wind up the company. The decision in the case of Madhusudan Gordhandas and Co. [1971] 3 SCC 632 : [1972] 42 Comp Cas 125 was once again quoted by the apex court reiterating the said proposition of law.
23. In the context of the categorical expression of the law by the Supreme Court and the decision referred to above, I do not find any reason to accept the contentions of the petitioner-company. The defence of the respondent is unimpeachable and one of substance and deserves to succeed both on law as well as on the facts.
24. In the circumstances, the petition preferred by the petitioner-company under Section 434(1)(a) of the Companies Act, deserves to be dismissed. However, no order as to costs.