Gujarat High Court
Conart Engineers Ltd vs Laffans Petrochemicals Ltd
Author: M.S.Shah
Bench: M.S.Shah
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
COMPANY PETITION No 287 of 1997
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CONART ENGINEERS LTD.
Versus LAFFANS PETROCHEMICALS LTD.
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MR BH CHHATRAPATI for Petitioner MR PH BUCH for Respondent No. 1
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CORAM : MR.JUSTICE M.S.SHAH
Date of Order: 16/10/98
CAV ORDER
In this petition under Sections 433 and 434 of the Companies Act, 1956 (hereinafter referred to as "the Act"), petitioner M/s Conart Engineers Ltd. (hereinafter referred to as "the petitioner") has prayed that the respondent Company-M/s Laffans Petrochemicals Ltd. (hereinafter referred to as "the respondent" or "the Company") be wound up on the ground that the respondent has not paid the petitioner a sum of Rs.92,866/- together with interest thereon at the rate of 21% p.a., despite statutory notice dated 20.1.1997. .RS 2 #. The facts leading to filing of the petition, as averred by the petitioner, are as under :-
2.1 The petitioner is a public limited Company engaged in the business of construction of buildings and erection of plants etc. The respondent is a Company engaged in the business of manufacturing petrochemicals like Neptha Methyle. The registered Office and factory of the respondent is at Panoli, Ankleshwar in Bharuch District.
2.2 Under a contract dated 9.5.1992, the respondent entrusted to the petitioner work of construction of Phase I and Phase II of the factory building at Panoli and the respondent was to pay to the petitioner the amount of their bills as per the certificates issued by the architect. Against the petitioner's bills for a total amount of Rs.45,82,994/-, the respondent had already paid the petitioner a sum of Rs.45,78,049 leaving a sum of Rs.4,945/-.
2.3 By its letter dated 15.6.1994, the respondent awarded to the petitioner another construction work at Panoli factory at the price rise of 17.50% over and above the rates of Phase I & II project, with other conditions remaining same. The petitioner completed the said construction work and submitted bills for Rs.10,67,921/against which the Company has paid a sum of Rs.9,80,000/- leaving a sum of Rs.97,921/-. Thus, the total of the outstandings comes to Rs.92,866/-. The said bills for Rs.10,67,921/- were also certified by the General Manager (Operations) of the Company.
2.4 In view of the failure on the part of the Company to pay the aforesaid balance amount of Rs.92,866/-, the petitioner served notice dated 20.1.1997 under Section 434 of the Act demanding the aforesaid amount with 24% interest. Since the respondent neither gave any reply to the notice nor complied with the same, the petitioner has filed the present winding up petition.
2.5 After filing of the petition in July, 1997, affidavit dated 16.2.1998 has been filed on behalf of the petitioner-Company pointing out that the petitioner had received from the respondents fax message dated 22.7.1997 requesting the petitioner for duplicate certified copies of the invoices raised by the petitioner alongwith a statement of account. It further stated that the respondent will settle the payment outstanding on receipt of the above referred data. The petitioner accordingly complied with the requisition. Still the respondent has failed and neglected to pay its dues.
#. In response to the notice issued by this Court, affidavit in reply dated 27.1.1998 has been filed on behalf of the respondent-Company stating as under :-
3.1 The respondent has suffered damage to the tune of Rs.15 lacs on account of the delay in execution of the construction work and for destruction of the material left by the petitioner at site for which the respondent proposes to file a suit for the damages. The present petition is filed with a view to pre-empting such legal action.
3.3 No amount is outstanding from the respondent to the petitioner as per the books of accounts of the respondent-Company. The statement of account of the petitioner in the books of accounts of the respondent company is annexed to the affidavit at Annexure "A". The respondent has denied that it has to pay the amount of Rs.4995/- in connection with the first contract. Similarly it has denied that it is liable to pay any amount under the second contract either. The deponent of the affidavit had requested the petitioner in the past to provide the details of their own running bills because the petitioner had corrected its own running bills from time to time which was not finally intimated to the respondent Company. The statement of accounts produced by the petitioner is not correct. The respondent has made payment of whatever was duly certified by the architect of the respondent.
3.3 The petitioner's notice being false and frivolous was not replied by the respondent Company. However, vide its letter dated 14.3.97 addressed by the Company Secretary of the respondent to the advocate for the petitioner in response to his notice dated 20.1.97 it was pointed out by the respondent that the respondent had released a sum of Rs.25,000/- in October, 1996 as a final payment and, therefore, it is not correct on the part of the petitioner to state that the respondent failed to reply to the notice.
3.4 It is denied that the respondent is commercially insolvent. On the contrary the respondent Company is a profit making Company and its profit for the year 1996-97 was Rs.177 lacs.
3.5 The respondent Company is bona fide disputing the claim of the petitioner and, therefore, the petition deserves to be dismissed.
#. On behalf of the petitioner affidavit in rejoinder dated 4.4.1998 has been filed denying the averments and allegations made in the reply affidavit. It is further stated that the work was completed to the full satisfaction of the respondent. The 12th and final bill had been placed by the petitioner on 30.9.1995 and several payments aggregating to Rs.9,80,000/- were made by the respondent to the petitioner towards the said bill, because the respondent had no grievance against the petitioner on account of the delay in execution of the work or otherwise. Otherwise, the payments right till 16.10.1996 would not have been made. The fax message dated 22.7.1997 clinches the issue and no legal action has been taken by the respondent against the petitioner by way of suit for any damages as threatened in the reply affidavit. The statements of account produced by the respondent with the reply affidavit did not portray the correct set of facts and are inconsistent with the fax message dated 22.7.1997. The bills of Rs.10,67,921/were duly certified by the respondent Company.
As regards the statement in the reply affidavit that the letter dated 14.3.1997 was sent in reply to the petitioner's statutory notice, it is stated on behalf of the petitioner that no such letter was ever received by the petitioner. It is also denied that any such letter was written by the respondent. Reference is also made to other winding up petitions.
#. At the hearing of this petition, the learned counsel for the petitioner has submitted that since the respondent Company did not give any reply to the statutory notice, the stand in the reply affidavit that the payment of Rs.25,000/- made by the respondent in October, 1996 as a final payment is an after thought. It is further submitted that the fax message dated 22.7.1997 clearly shows that the defence of full and final payment made in October 1996 is not bona fide.
#. On the other hand, Mr Buch for the respondent Company has submitted that the respondent had replied to the statutory notice by sending its reply to the petitioner's advocate on 14.3.1997 and, therefore, the petitioner's claim was certainly disputed. The respondent had denied that the bills for Rs.10,67,921/were certified by the General Manager (Operation) of the respondent Company. The respondent had made payments of whatever was duly certified by the architect of the Company. Further, reliance is placed on the decisions reported in 85 Company Cases 190 and also in 83 Company Cases 780. It is submitted that only remedy available to the petitioner is filing of a civil suit and that the present petition is filed as a lever to extract the disputed claim.
#. In the judgment delivered today in Company Petition No. 214 of 1997 against this very respondent-Company, this Court has examined at length the scope of summary inquiry in a winding up petition and has laid down the following principles which emerge from an analysis of the decided cases where the Company asserts that it has the ability to pay its debts but disputes the particular debt of the petitioner :-
I SUMMARY INQUIRY When the petitioning creditor makes out a prima facie case that the Company, which is a going concern, owes a determinate sum of money or a substantially ascertained sum of money, which is not paid inspite of service of statutory notice, the Court would issue notice to the Company to show cause why the petition should not be admitted. If the Company disputes the debt, the Court is required to hold a summary inquiry. The Company has to prima facie prove all the facts on which the defence rests. In such a summary inquiry, the parties may generally file affidavits and produce documents and in exceptional cases the Court has the discretion even to permit the parties to lead oral evidence.
II ISSUES :
At the admission stage, the Court is required to give its findings on the following aspects :-
(i) Whether the petitioner creditor is a creditor to whom the Company owes an ascertained sum of money or substantially ascertained sum of money.
(ii) Whether the said debt is within limitation.
(iii) Whether the defence of the Company is valid or bona fide or whether it is mere moonshine.
In short, it may be said that the Court is required to decide in the summary inquiry whether the Company is liable to pay the petitioner an ascertained sum of money or substantially ascertained sum of money.
III WHAT IS A BONAFIDE DEFENCE After hearing the parties and considering the material on record, if the Court gives findings on issues (i) and (ii) in favour of the petitioner, issue (iii) will have to be considered. The Court has to examine the nature of the respective cases pleaded by the parties and if a prima facie case is made out by the petitioner, the Company should shoulder the onus of disproving it, by showing that its defence is in good faith and is one of substance and it is likely to succeed in point of law. The defence must be substantial and not mere moonshine. So also where the dispute is a mere after thought, an adverse inference may have to be drawn against the Company that the defence being an after thought, is a mere cloak to cover up its inability or refusal to pay. Adverse inference may also have to be drawn where the cheque/s issued by the Company for the debt in question or a part thereof is/are dishonoured. For determining whether a debt is disputed bona fide or not, the conduct of the parties in relation to the transaction in question, the charecter of the pleas and the circumstances which will be peculiar to each case will have to be considered.
IV COURT'S FINDINGS ON BONA FIDES OF COMPANY'S DEFENCE AND ORDERS WHICH MAY BE PASSED UPON SUCH FINDINGS (1) After considering the material on record, if the Court comes to the conclusion that the defence raised by the Company is not only not bona fide, but the defence is reeking with mala fides or the company's conduct leading to the dispute (in respect of which the Company's defence is found to be not bona fide) was dishonest, the Court would admit the petition and pass an order for advertisement.
(2) Where the Court comes to the conclusion that the defence is not bona fide (as distinguished from the conclusion that the defence is mala fide), the Court may give the Company an opportunity to pay the debt to the petitioner within the stipulated time limit. If the debt is not paid, the Court would ordinarily admit the petition, unless a strong case is made out for not admitting the petition. The Court may, in its discretion even pass a conditional order of admission without an order for advertisement, while giving the finding that the Company's defence is not bona fide.
(3) Where the Court gives only a prima facie or tentative finding that the Company's defence is not bona fide, before admitting and advertising the petition the Court must also give a prima facie or tentative finding that the Company is commercially insolvent, that is, the Company is unable to pay its debts as a going concern.
(4) Where the Court gives a finding that the defence raised by the Company is a bona fide one, non payment of such debt cannot amount to neglect to pay debt as contemplated by Sec. 434(1)(a). Hence, the Court would dismiss the petition without prejudice to the petitioner's right to file or to continue with a suit against the Company for recovery of its debt. In such a case, the Company Court may give only a prima facie i.e. tentative finding because the controversy is to be finally decided in the civil suit.
(5) If the case falls in the grey area, that is, the Company's defence is neither found to be substantial nor a moonshine and, therefore, the Court is not in a position to give a finding one way or the other whether the defence is bona fide or not - even tentatively, the Court may require the Company to deposit the claim amount or a part thereof in the Court and require the petitioner to prove its claim before the Civil Court to which the amount deposited will be transferred or the Court may require the Company to give security for the amount claimed.
#. In light of the aforesaid principles, this Court proceeds to examine the factual controversy between the parties.
On the one hand, although the petitioner's assertion that the bills for Rs.10,67,921/- are certified by the respondent Company's General Manager (Operation) has been denied in the affidavit in reply filed by Sandeep Seth, Managing Director of the respondent Company, the petitioner Company has not produced the attested true copies of such certified bills alongwith the rejoinder affidavit nor have the original bills been produced at the time of hearing of the petition. In view of the assertion by the respondent that it has made payments of whatever was duly certified by the architect of the Company, the petitioner ought to have produced the bills duly certified by the architect of the Company for the full amount, but that is also not done.
On the other hand, the respondent Company while asserting in the reply affidavit that by its letter dated 14.3.1997 addressed by the Company Secretary of the respondent Company to the advocate for the petitioner the Company had given response to the statutory notice dated 20.1.1997, the respondent has not produced a copy of the said letter dated 14.3.1997 or the acknowledgement receipt, inspite of the assertion on behalf of the petitioner in the affidavit in rejoinder that no such notice was received by the petitioner and that such notice was not sent by the respondent. Moreover, the stand of the respondent in the reply affidavit that the respondent had released a sum of Rs.25,000/- in October 1996 as a final payment is also inconsistent with the fax message dated 22.7.1197 from the respondent Company to the petitioner which reads as under :-
"This is in reference to the telecon of the above subject matter and we request you to kindly hand over the duplicate certified copies of the invoices raised by you alongwith the statement of Account. We assure you to settle the payment outstanding on receipt of the above data."
#. In view of the above set of pleadings and evidence on record, it is not possible to give any finding as to whether the defence pleaded by the Company is bona fide or not. However, looking to the inconsistent plea adopted by the respondent Company in the affidavit in reply as contrasted with the contents of the fax message dated 22.7.1997, it appears to the Court that this is a fit case where the respondent Company should be required to deposit 50% of the claim made by the petitioner under the second contract i.e. 50% of Rs.87,921/- rounded off to Rs.88,000/- i.e. Rs.44,000/-.
##. In view of the above discussion, the following order is passed :-
(1) (a) Upon the respondent Company depositing a sum of Rs.44,000/- (Rupees Forty four thousand only) in this Court within one month from today, under intimation to the learned counsel for the petitioner, this Company Petition shall stand dismissed.
(b) Upon deposit of the aforesaid amount, it will be open to the petitioner to file a suit for the claim which is the subject matter of the present petition, within one month from the date of receipt of the intimation by the learned counsel for the petitioner regarding deposit of the amount by the respondent Company.
(c) Upon the petitioner filing a certified copy of the plaint in such civil suit before the Registrar of this Court, the amount shall be transferred to the Civil Court where such suit is filed and thereafter the investment/disbursement of the amount shall abide by the interim/final orders which may be passed by the Civil Court in such suit.
(d) In case the petitioner does not file a civil suit as aforesaid, the amount deposited by the respondent Company shall be permitted to be withdrawn by the respondent Company.
(2) In case of failure on the part of the respondent in depositing the amount as directed above, the petition shall stand admitted and shall be placed on board for directions regarding advertisement.
Sd/-
October 16, 1998 (M.S. Shah, J.)