Delhi High Court
Sheetal Fabrics vs Coir Cushions Ltd. on 28 February, 2005
Equivalent citations: 120(2005)DLT693
Author: A.K. Sikri
Bench: A.K. Sikri
JUDGMENT A.K. Sikri, J.
1. The petitioner, by means of this petition, is seeking winding up of the respondent company. The petition is filed under the provisions of Section 433(e), 434 and 439 of the Companies Act, 1956. However, primary ground is that the respondent company is indebted to the petitioner in the sum of Rs. 3,52,471/-and is unable to pay the debt.
2. According to the petitioner, it is running the business of cloth i.e. furnishing fabrics, etc. Orders were placed by the respondent company on the petitioner firm from time-to-time with effect from 3rd June, 1992 to 1st August, 1995 for supply of this material. The material for a total value of Rs. 5,49,221/- was supplied against various invoices/bills. Out of this amount, the respondent company paid only a sum of Rs. 1,96,750/- thus leaving a balance of Rs. 3,52,471/-. It is stated that the payment of Rs. 1,96,750/- made by the respondent company to the petitioner included last payment of Rs. 24,467/- which was made on 15th September, 1995 by means of a cheque. Since the respondent company did not make further payments, the petitioner has calculated interest on the overdue payment at the rate of 18 per cent per annum after the expiry of 30 days from the date of invoices and in this manner further sum of Rs. 3,20,683/- as interest is added for the period up to 15th August, 1998, thus making a total sum of Rs. 6,73,154/-. The petitioner sent statutory notice dated 28th July, 1998 which, according to the petitioner, was received by the respondent company on 3rd August, 1998 and in support of this plea, acknowledgement card purported to have signed on behalf of the respondent company is annexed with the petition. The case of the petitioner is that in spite of this notice, the dues of the petitioner were not paid and, therefore, it be deemed that the respondent company is unable to pay the debt. It is also stated in the petition that the respondent company had borrowed loan from other companies including PICUP and even that is outstanding. The debt is also due to one M/s. Mahesh Ramdas Kanani of Mumbai for an amount of approximately Rs. 18 lacs and the said party has also filed a suit against the respondent company in the Bombay High Court being Suit No. 463/1996.
3. The respondent company has contested the petition by filing reply in which maintainability of this petition is challenged, inter alia, on the ground that the respondent company is commercially solvent and is able to pay its debts as and when established by its creditors. The claim of the petitioner is denied. It is also stated that, in any case, the said claim is time-barred. The receipt of the statutory notice is also denied. Another preliminary objection raised is that the petitioner could not file this petition as it is not a registered firm and, therefore, the petition is barred under Section 69 of the Partnership Act. Thus, in nutshell, following defense is raised in the reply:
(a) The amount is disputed.
(b) Statutory notice was not served upon the respondent company.
(c) The amount claimed is barred by limitation.
(d) The petitioner firm is not a registered firm and, therefore, incapable of filing the present proceedings.
(e) The respondent company is commercially solvent and the petition is misconceived.
4. It may be noted that on an earlier occasion, the Court, after heading the parties, had passed the interim order dated 8th January, 2003 directing the respondent company to deposit a sum of Rs. 3,52,471/- as claimed in the petition. The respondent company had challenged this order by filing an appeal before the Division Bench which was disposed of vide order dated 25th August, 2003. The operative portion of that order, which records consent of both the parties, is as under:
"Appellant shall deposit Rs. 2 lacs instead of Rs. 3,52,471/- within six weeks. The appellant will be at liberty to file supplementary reply to company petition taking any other available pleas before the Company Court and it shall be open to Company Court to pass any appropriate direction in the matter.
5. The respondent company has deposited the aforesaid sum of Rs. 2 lacs. Vide order dated 3rd December, 2003, the petitioner was allowed to withdraw the said amount on furnishing adequate security to the satisfaction of the Joint Registrar of this Court for restitution of the said amount along with an undertaking that it would be paid back by the petitioner in case there is any order passed by this Court directing it to pay back the same. The said amount is accordingly withdrawn by the petitioner on furnishing the security.
6. The respondent company also filed supplementary reply as permitted by the Division Bench and rejoinder thereto is filed by the petitioner.
7. I may state that at the time of arguments, learned Counsel for the respondent company did not press the plea regarding limitation or service of statutory notice or that the petitioner firm is an unregistered firm. Even otherwise, there is no denial to the averment that part payment was made on 15th September, 1995 and the present petition was filed on 9th September, 1998, i.e. within three years of this payment. Therefore, the purported claim cannot be treated as time-barred. Insofar as service of statutory notice is concerned, the petitioner has enclosed with the petition the postal receipt as well as the AD card. Address of the respondent company indicated on the said AD card is also correctly mentioned. The petitioner has also stated in the rejoinder that it is a registered partnership firm and copy of the registration of the petitioner firm is produced which is not challenged by the respondent company even though the respondent company has filed a supplementary reply.
8. It may be mentioned at this stage that the respondent company was directed to file the list of creditors as per the records of the respondent company. This list is not filed in spite of statement made on 8th July, 2004 by the learned Counsel for the respondent company that the same would be filed by the next date. However, learned Counsel made a candid statement that in the list of creditors, name of petitioner is shown. Thus, it was conceded that the petitioner is shown as one of the creditors in the books of accounts of the respondent company.
9. Learned Counsel for the petitioner, in these circumstances, submitted that since the liability was acknowledged by the respondent in its books of accounts, the petitioner was established as one of the creditors and thus it was not open to the respondent company to deny the claim of the petitioner in the reply filed by it. Learned Counsel for the respondent company, on the other hand, submitted that the present petition was not maintainable as it was based on a running account. He submitted that if the rejoinder filed by the petitioner, the petitioner had accepted this fact as in reply to para 2 of the preliminary objection, the petitioner has stated that balance amount of Rs. 3,52,471/- was due from the running account of the respondent company which was maintained by the petitioner. Similar admission that the account in question was running account is contained in para 6 of the rejoinder 'on merits' as well. Relying upon the judgment of this Court in the case of Rishi Pal Gupta v. S.J. Knitting and Finishing Mills (P) Ltd., reported as (1994) 1 Comp.L.J. 343 (Delhi), learned Counsel submitted that such a winding up petition based on running account between the parties was not maintainable. He further submitted that there was no acknowledgement of the debt in the balance sheet which would be clear from the balance sheet filed along with the reply and since the debt was disputed, the petitioner had even filed a suit which was pending in the Bombay High Court. He also relied upon the judgment of the Calcutta High Court in the case of In re. Padam Tea Co. Ltd. reported as AIR 1974 Calcutta 170.
10. Let me first deal with the case of Padam Tea Co. Ltd. (supra). This case relied upon by learned Counsel for the respondent company in support of his plea that acknowledgement contained in the balance sheet could not be relied upon by the petitioner. However, on going through this judgment, one would clearly notice that it does not lay down the proposition which is sought to be advanced by the learned Counsel. That was a case where balance sheet was not confirmed or passed by the shareholders. The Court observed that such a balance sheet, before it could be relied upon, must be duly passed by the shareholders at the appropriate meeting and must be accompanied by a report, if any, made by the Directors for its validation. The principle of law laid down was that statement in the balance sheet indicating liability is to be read along with the Directors' report to see whether both so read would amount to an acknowledgement. There is no dispute about this proposition of law. However, in that case, the Court refused to accept entry in the balance sheet as acknowledgement of debt because of two reasons:
(a) The balance sheet was not passed by the shareholders at the appropriate meeting.
(b) The Directors' report, in the balance sheet, contained the following statement:
Your Directors are of the opinion that the liabilities shown in Schedules 'A' and 'B' of the balance sheet excepting those of United Bank of India, M/s. Goenka and Co. Private Ltd. and Caritt, Moran and Co. Pvt. Ltd. are barred by limitations, hence these liabilities are not confirmed by your Directors.
11. These were the two considerations which led the Court to conclude that even the debt shown in the balance sheet in respect of the said petitioning creditor would not amount to an acknowledgement as contemplated under Section 18 of the Limitation Act and following observations in this regard are reported:
"Therefore, in understanding the balance sheets and in explaining the statements in the balance-sheets, the balance-sheets together with the Directors' report must be taken together to find out the true meaning and purport of the statements. Counsel appearing for petitioning creditor contended that under the statute the balance sheet was a separate document and as such if there was unequivocal acknowledgement on the balance-sheet is a statutory document and perhaps is a separate document but the balance sheet not confirmed or passed by the shareholders at the appropriate meeting and in order to do so it must be accompanied by a report, if any, made by the Directors. Therefore, even though the balance sheet may be a separate document these two documents in the facts and circumstances of the case should be read together and should be construed together.
12. In the same breath, the High Court also explained as to what would constitute an acknowledgement under Section 18 of the Limitation Act by referring to the judgment of the Supreme Court and this discussion would be found in the following passage:
"It was held by the Supreme Court in the case of L.C. Mills v. Aluminium Corporation of India Ltd., AIR 1971 SC 1482, that it was clear that the statement on which the plea of acknowledgement did not create a new right of action but merely extended the period of limitation. The statement need not indicate the exact nature or the specific character of the liability. The words used in the statement in question must, however, relate to a present subsisting liability and indicate the existence of a jural relationship between the parties such as, for instance, that of a debtor and a creditor and the intention to admit such jural relationship. Such an intention need not, however, be in express terms and could be inferred by implication from the nature of the admission and the surrounding circumstances. Generally speaking, a liberal construction of the statement in question should be given. That of course did not mean that where a statement was made without intending to admit the existence of jural relationship, such intention should be fastened on the person making the statement by an involved and far-fetched reasoning. In order to find out the intention of the document by which acknowledgement was to be construed the document as a whole must be read and the intention of the parties must be found out from the total effect of the document read as a whole."
13. In the present case, it would be seen that the admission of liability in the list of creditors maintained by the respondent company or in the balance sheet is without any conditions or any strings attached. Such an admission would clearly amount to an acknowledgement [State Bank of India v. Hegde and Golay Ltd., (1987) 62 CC 239 (Kar.); New Era Mfg. Co. Ltd., Re, (1967) 37 Com Cases 796 (Ker.). Jones v. Bellegrove Properties Ltd., (1949) 2 KB 700 and Gee and Co. (Woolwich) Ltd. Re, (1975) 1 Ch. 52; Lahore Enamelling and Stamping Co. Ltd. v. A.K. Bhalla, (1958) 28 CC 216 (Punj). Thus it is only when there is a bona fide dispute by the respondent company regarding the entries in its account books, on which reliance is placed by the petitioner creditor, such an acknowledgement may not be of much assistance.
14. Therefore, judgment of the Calcutta High Court, as cited by learned Counsel for the respondent company, would not come to its rescue in the facts of the present case. One may also take note of the judgment of the Andhra Pradesh High Court in the case of Vijayalakshmi v. Hari Hara Ginning and Pressing, reported as (1999) 96 CC 723 wherein the Court made the following observations in respect of a debt shown in the balance sheet:
"Without expressing our opinion on the law laid down in that judgment, though it cannot be categorically laid down that mere showing a debt in balance-sheet would amount to acknowledgement, we may observe that it is a well established law that for giving an acknowledgement a person has to be conscious of his act to the knowledge of the other person. Merely showing a debt in a balance-sheet cannot, prima facie, be termed to the an acknowledgement for the purposes of the Limitation Act, 1963. The acknowledgement as envisaged by the Limitation Act categorically has to be with the intention of accepting the debt with the object of extending limitation."
15. This leaves us to consider the question as to whether the petition based on running account would be maintainable. Relying upon the judgment of this Court in Rishi Pal Gupta (supra), the respondent contends that the petition based upon running account deserves to be dismissed. On going through this judgment, it would be noticed that was also a case where winding up petition was filed on the basis of running account maintained in respect of the supplies made by the petitioner to the respondent company. The petitioner has also filed a suit in this Court against the respondent company for larger amount which was still pending. When the respondent company did not make the payment a complaint was also filed with the Registrar of Companies, who in turn, issued notice to the respondent company and the respondent company submitted reply acknowledging liability towards the petitioner to the tune of Rs. 6,89,870.76 paisa. In the petition filed by the petitioner, the respondent company did not appear and was proceeded ex parte. The petitioner was allowed to lead ex parte evidence. However after hearing the petitioner, the Court was pleased to dismiss the petition as it was based on running account maintained between the parties. The reason given by the Court in support of this decision is contained in para 3 of the judgment which reads as under:
"In his evidence by way of affidavit Sh. Rishi Pal Gupta, petitioner, has reiterated what has been stated in the petition. So far as the official of the Registrar of Companies is concerned, he proved on record the reply filed by Shri Subhash Sahni, director of the respondent company. Photocopy of the same has been exhibited as Ex.-1. The petitioner is in fact relying on this document and states that an amount of Rs. 6,89,870.76 is due. It is petitioner's own admission that this petition is based on the running account maintained between the parties. That every year the accounts were sent to the respondent. The respondent company had been making the payment and these were also adjusted against the running account. Section 34 of the Evidence Act stipulates that mere entries in the books of account will not be sufficient to fix liability on any person and that each entry in the books of account shall have to be proved. In this regard, reliance can be placed on the decision of Supreme Court in the case of Chandradhar Goswami and Ors. v. Gauhati Bank Ltd., AIR 1967 SC 1058. Admittedly, the respondent has not put in appearance nor has raised any dispute nor any reply has been filed. But as per the petitioner's own admission, since the base of the filing of this petition is running account, therefore, such a petition, to my mind, cannot be subject matter of winding up petition. Nor there can be presumption of inability to pay. The appropriate remedy is not winding up petition but a suit. Counsel or the petitioner contended that similar view was taken by this Court in C.P. No. 191/87, decided on 8.2.88 against which appeal was preferred and the Division Bench set aside that order in Company Appeal No. 10/88 decided on 13.1.92. I have perused the decision of the Division Bench, I am afraid the point at issue before the Division Bench was not the maintainability of the petition on the ground of running account. However, the present petition is based on the ground of running account which was not the subject matter before the Division Bench. From the perusal of the judgment of the Division Bench, it can be inferred that this appeal arose against the decision of this Court in C.P. 191/87. Furthermore, Supreme Court in the above mentioned case of Chandradhar Goswami (supra) has held in no uncertain words that each entry has to be proved in the books of accounts and this cannot be done in a summary procedure under Section 433 of the Companies Act. This can be gone into as a civil suit.
16. I may state at this stage that in view of the judgment of the Supreme Court in the case of Chandradhar Goswami and Ors. v. Gauhati Bank Ltd., reported as AIR 1967 SC 1058, the statement of account cannot be taken as correct document depicting liability ipso facto and each entry has to be proved in the books of accounts. Again to this extent, there would not be any quarrel with the aforesaid judgment of a Single Judge of this Court. Therefore, if the petition is based only on running account, it would not be difficult to hold that such a petition is not maintainable. However, what would be the position in case, where apart from and in addition to said running account, there is a clear admission on the part of the respondent company acknowledging the said debt. Be it in the form of some communication or be it in the form of entries in the books of accounts or balance which can safely be treated as acknowledgement of debt. This aspect cannot be overlooked and case cannot be treated as the one asked on merely a running account simplicitor. In such a case the petition is also based upon the acknowledgement of debt by the respondent company which is in the nature of admission of the debt. No doubt the entries in the running account are to be proved. However, whether any proof is necessary when there is an admission? Obviously what is required to be proved by a person is the fact which is disputed by the other side. One is not to prove those facts which are admitted. This is a clear mandate of Section 58 of the Evidence Act. Take for example, in a given case, the petitioner who is maintaining running account sends the same to the respondent company for verification and the respondent company after going through the same not only verifies but confirms the balance outstanding payable by the respondent company to the petitioner. Can it be said, even in such a case, that the petition is not maintainable as it is based on running account? The obvious answer would be in the negative. Therefore according to me, judgment of this Court in the case of Rishi Pal Gupta (supra) is to be read only when the petition is based on running account simplicitor without any confirmation by the respondent company or without any acknowledgement of debt by the respondent company. No doubt in that case the learned Judge while taking note of the facts found that the respondent company had acknowledged the liability towards the petitioner while replying to the Registrar of Companies. However, it appears that while discussing the case, the learned Judge only went by the fact that the petition was based on running account and did not at all deal with the question as to what would be the effect of acknowledging the liability in reply to the Registrar of Companies. Therefore, this case cannot be treated as laying down the proposition that even if the liability is acknowledged by the respondent company in respect of a debt which the respondent company owes to the petitioner, still such a petition would not be maintainable.
17. Coming to the facts of the present case, the petitioner has averred that against supply of material for a total value of Rs. 5,49,221/- the respondent company made payment of Rs. 1,96,750/- and thus a sum of Rs. 3,52,471/- still outstanding. The respondent company has liability in the books of accounts maintained by the respondent company copies of which were placed by the respondent company in compliance of the orders passed by this Court. The respondent company was directed to place on record the list of creditors. In spite of these orders, the respondent company has not produced the same although statement was made by learned Counsel for the respondent company that the petitioner is shown as a creditor. It is not a case where balance sheet is not passed by the shareholders or there is any note by the Directors questioning the entry in the balance sheet on any plea, like time-barred, etc. Had the respondent company produced the list of creditors, one would have known the exact liability which is admitted by the respondent company qua the petitioner. For not producing this document in spite of Court orders, adverse inference can be drawn. Be as it may, once there is an admission of liability, the petition can be admitted.
18. I am, therefore, of the prima facie opinion that the respondent company is indebted to the petitioner which debt is acknowledged. Once that is found, the defense of the respondent company that it is a solvent company would also not hold any water. This petition is accordingly admitted to hearing. Let citations be published in Statesman (English) and Jansatta (Hindi). The question of appointment of provisional Liquidator shall be considered after the citation is published. However, liberty is grated to the respondent company to deposit balance amount of Rs. 1,52,471/- (Rs. 2,00,000/- already deposited pursuant to the Division Bench order) along with interest calculated at the rate of 6 per cent per annum on Rs. 3,52,471/- from 1st August, 1998 (keeping in view that registered notice was sent on 31st July, 1998) with the Registrar General of this Court within six weeks from the date of this order. The petitioner shall not get the citations published for a period of six weeks. In case the aforesaid amount is not deposited, the petitioner shall proceed with the publication of citations,
19. List for further orders on 12th July, 2005.