Calcutta High Court
The New Red Bank Tea Company Private ... vs Jahar Roy on 19 August, 2002
Equivalent citations: II(2003)BC267, (2003)1CALLT310(HC), [2003]45SCL429(CAL)
Author: J.K. Biswas
Bench: Tarun Chatterjee, Jayanta Kumar Biswas
JUDGMENT J.K. Biswas, J.
1. The sole respondent in this appeal, as petitioning-creditor, filed the Company Petition No. 324 of 2001. It was filed under Sections 433, 434 and 439 of the Companies Act, 1956. By the order dated 26th November 2001 the learned Company Judge admitted the said company petition for a sum of Rs. 10,36,353.83. Aggrieved by that order the company has preferred the present appeal.
2. The case made out in the respondent's said company petition was as follows:
From the year 1985 the respondent had been supplying agro-chemical products to the appellant-company. The parties started maintaining mutual and open current accounts. The appellant-company used to make part payments of the outstanding bill amounts. Following the system, that came to be established between the parties over the years, by a letter dated 21st May 1997 the respondent sent to the appellant-company the statement of accounts' showing an outstanding balance of Rs. 6,22,433.47 payable as on 31st March 1997 by the appellant-company to the respondent. In the same letter the respondent mentioned that on the appellant-company's failure to confirm the correctness of the enclosed statement of accounts within seven days from the date of receipt thereof, it would be presumed that the appellant-company had nothing to say against the said statement of accounts. That letter dated 21st May 1997 was received by the appellant-company under its seal and signature. By similar letters dated 18th June 1998, 7th April 1999, and 6th May 2000 the respondent sought confirmation from the appellant-company of the outstanding balances of Rs. 8,03,658.47, as on 31st March 1998; Rs. 8,42,227.47, as on 31st March 1999, and Rs. 10,16,233.83, as on 31st March 2000 respectively. In all those letters it was mentioned that on the appellant-company's failure to dispute the correctness of the statement of accounts, they would be presumed to be correct. All those letters were received by the appellant-company by putting its seal and signature. None of the said four letters were replied to by the appellant-company. As on 31st March 1997 the appellant-company was liable to pay Rs. 6,223,433.47, and thereafter during the period from the financial year 1997-98 to the financial year 2000-01 the respondent supplied to the appellant-company goods worth Rs. 14,96,420.36; and as against said supply, from time to time, the appellant-company paid Rs. 10,82,500.00. In the circumstances as on 31st March 2001 the appellant-company was liable to pay a sum of Rs. 10,36,353.83 to the respondent. As in spite of repeated demands the appellant-company had not made the payment, the respondent through his learned advocate served the statutory notice dated 27th April 2001 on the appellant-company under Sections 433, 434 and 439 of the Companies Act, 1956.
3. By the advocate's letter dated 22nd May 2001 the appellant-company replied to said statutory notice. The appellant-company's reply was :
The goods supplied by the respondent were of inferior quality, and as a result, the appellant-company had suffered immense loss. In the joint meeting held between the appellant-company and the respondent, decision had been taken to make joint inspection of the tea garden for ascertaining the actual loss and settling the matter amicably. The respondent on some pretext or the other had backed out of said decision. Particulars of the bills and payments mentioned in the statutory notice did not tally with the appellant-company's accounts. The respondent was liable to pay compensation assessed at Rs. 40 lakhs. The respondent was not entitled to get any payment from the appellant-company; and he was at liberty to initiate legal proceedings.
4. By a letter dated 2nd June 2001 the respondent replied to the appellant-company's said letter dated 22nd May 2001. The respondent's reply was:
After consumption of the goods supplied, the appellant-company took an afterthought frivolous plea about the quality of the products, and such plea was taken as an attempt to defeat the respondent's legal and justified claim. No joint meeting had ever taken place between the parties as alleged by the appellant-company. The appellant-company was at liberty to produce particulars of the accounts for tallying with those of the respondent.
On the appellant-company's refusal to pay, the respondent filed the said company petition on 11th June 2001. The respondent contended that the appellant-company was liable to be wound up, as it was unable to pay its debts. He also produced copies of letters dated 21st May 1997, 18th June 1998, 7th April 1999, and 6th May 2000. A letter dated 30th November 1999 was also annexed to the said company petition to show that a sum of Rs. 1,36,027.36, being the outstanding dues of one 'Camellia Tea Group Private Limited' (hereinafter referred to as 'Camellia') run by the same management, had been assigned to the appellant-company.
5. The appellant-company contested the said company petition by filing an affidavit-in-opposition dated 30th August 2001. The appellant-company's case was:
The letters dated 21st May 1997, 18th June 1998, 7th April 1999, and 6th May 2000, whereby confirmation of balances had been asked for, were manufactured and fabricated documents, and the same had never reached the appellant-company. The two persons who had allegedly received the said letters, left the appellant-company's service on 1st July 2000. The appellant-company's seals appearing on copies of those letters, were either manufactured and used unauthorisedly or used unauthorisedly. Payments of Rs. 53,000 made by three cheques dated 13th November 1997, 28th November 1997, and 12th January 1998, did not find place in the purported statement of accounts furnished by the respondent. Bill No.s 1 and 2 dated 6th May 2000 and 16th May 2000 respectively, totaling for Rs. 80,870, had not been received by the appellant-company. The sum of Rs. 1,36,027.36 allegedly due from Camellia had never been accepted by the appellant-company on assignment, as alleged. The products supplied were of inferior quality. The respondent had assured the appellant-company to fully compensate the loss suffered by it by using such inferior quality products.
By filing an affidavit-in-reply dated 12th September 2001 the respondent denied and disputed the correctness of the allegations made by the appellant-company in its said affidavit-in-opposition. The respondent also produced the bills, stated to be not received by the appellant-company.
6. With the aforesaid materials on record the learned Company Judge was pleased to hear the said company petition. He held as follows :
The appellant-company's contention that it had not received the respondent's letters, whereby confirmation of balances had been asked for, was without any substance. The allegations made by the appellant-company in its reply to the statutory notice were afterthought and could not be sustained. The purported defence taken by the appellant-company was nothing but a mere moonshine defence.
7. In the circumstances the said company petition was admitted for the sum of Rs. 10,36,353.83, i.e., the entire claimed amount. The appellant-company was given liberty to pay the dues within seven days. The learned Judge further ordered that the respondent would be entitled to interest at the rate of 12% per annum till the filing of the said company petition, and thereafter at the rate of 6% per annum till the entire dues were paid. He further directed that on the appellant-company's failure to make the payment, necessary advertisement would be made for winding up.
8. Appearing for the appellant-company, Mr. Bimal Chatterjee, learned senior advocate, first of all submitted that his client would not press the defence based on the plea of supply of inferior quality products by the respondent. He then submitted that the learned Judge was wrong in admitting the said company petition because of the following reasons.
9. The statement of accounts, on which the respondent had founded his claim, was on the face of it not correct. The amount of Rs. 6,55,473.47 shown in the statement enclosed with the respondent's letter dated 21st May 1997 as brought forward bill amount, was a fictitious amount. In the pleading nothing was mentioned as to how the said sum of Rs. 6,55,473.47 had been brought-forward. The said sum was the foundation of the whole statement of accounts; therefore, minus that unexplained amount, the entire edifice of the statement of accounts was bound to crumble. The accounts were highly disputed, and on the basis of unreliable accounts the said company petition should not have been admitted. The appellant-company had never confirmed Camellia's alleged debt. The claim of assignment was baseless, as the manner in which the alleged assignment had been made, was not a lawful manner. The learned Judge did not consider the aspect of alleged assignment at all. There was no evidence that the accounts had been confirmed by the appellant-company. Bills had not been received, and this aspect was also not considered by the learned Judge. Although a sum of Rs. 53,000 had been paid by cheques, the respondent claimed such amount; and this showed that the respondent approached the Court not with clean hands. While admitting the said company petition such amount was not deducted from the claimed amount, though the respondent had been found to be not entitled to the same. There was no debt due; and in any event, on the face of the disputed accounts, the issues could not be derided by affidavit-evidence.
He has relied on the following treatises and decisions :
'Buckley' on the Companies Act, 1948 (14th edition, Section-222, p. 523); 'Mulla' on the Transfer of Property Act, 1882 (9th edition, Section-130, p. 1335); Pradeshiya Industrial & Investment Corporation of U.P. v. North India Petrochemicals Limited and Anr., ; Hollyhock Pharmaceuticals Put. Ltd. v. Marbad Alloy Castings Pvt. Ltd., 1995 Supp (3) SCC 650; Registrar of Companies v. Kavita Benefit Pvt. Ltd., 48 Comp Cas 231 (Guj.) P.K Varghese v. J.T.V. Metal Finishers Pvt. Ltd., 63 Comp Cas 644 (Kar.); M. Elias Put. Ltd. v. Raj Mohini Jhamb, 78 Cal. W. N. 248 (DB); and Gujrat State Financial Services Limited v. Maegabyte Consultancy Services Pvt. Ltd. 1999 (2) Comp LJ 4 (Bom).
10. On the other hand, appearing for the respondent, Mr. Pratap Chatterjee, learned senior advocate has submitted as follows :
Admittedly, the appellant-company in its reply to the statutory notice did not dispute the facts of supply of the goods, confirmation of the accounts, existence of the debt, and assignment of Camellia's debt. The only dispute, which the appellant-company had raised, was regarding the quality of the products. The appellant-company took the defence that the products were of inferior quality; and consequently, nothing was payable to the respondent and on the contrary the appellant-company was entitled to compensation the tune of Rs. 40 lakhs. When the matter came to the Court the appellant-company raised the dispute only regarding the accounts. In that view of the matter, the learned Company Judge was perfectly Justified in admitting the said company petition.
11. He has cited the following decisions ;
Madhusudan Gordhandas and Company v. Madhu Woolen Industries Pvt. Ltd. and Ors., ; Syndicate Bank v. Southern Oils & Extractions Ltd. and Ors., 57 Comp Cas 81 (Kar.); and In re. Nopany & Sons Pvt. Ltd., 70 Comp Cas 262 (Cal.).
12. On behalf of the appellant-company, in reply, it has been submitted that minus the disputed four letters the respondent had no case; and the appellant-company was not obliged to disclose all its points of defence in reply to statutory notice. It has been submitted that if a debtor company is held to be under an obligation to disclose all the points of defence in reply to the statutory notice, then the requirement of filing an affidavit-in-opposition to a company petition filed by a creditor for winding up would have been dispensed with.
13. After hearing the parties and considering the materials on record we find that on the facts and in the circumstances of the case the learned Company Judge was perfectly justified in arriving at the conclusions that the debt was not bona fide disputed by the appellant-company; and the defence taken by it was not a substantial one, and rather, it was a moonshine defence.
14. We are of the view that the defence taken by the appellant-company in reply to the respondent's statutory notice should be the guiding factor for considering the question: whether the defence taken by the appellant-company in the Court was a bona fide and substantial one.
15. We do not agree with the proposition that in reply to statutory notice under Section 434 of the Companies Act, 1956, the company is not obliged to disclose all its points of defence. The notice is a statutory step by the creditor; it calls upon the company to act. The negligence to act creates a legal fiction against the company. Such negligence can be inferred: first, from the company's total silence; and secondly, from its giving up the defence taken in reply to the statutory notice, when the creditor approaches the Company Court. The opportunity given to the company to file opposition the company petition cannot be seized by the company to set the clock back for replying to the statutory notice. Defence not taken in the reply to the statutory notice, but taken for the first time in the affidavit-in-opposition filed in Court, cannot be accepted for holding that the company's refusal to pay being based on bona fide defence, the non-payment of the debt did not amount to its neglect to pay. Therefore, we are of the view that the company is under an obligation to disclose all its points of defence in its reply to the statutory notice. The service of the statutory notice is not an empty formality; it conveys the message of consequences. The provisions of Section 434 of the Companies Act ensure settlement of disputes to curb avoidable litigations. The appellant-company's contention, if accepted, will be contrary to the legislative intent. Its proposition just encourages litigation.
16. In its said reply the appellant-company did not dispute the facts of supply of the goods by the respondent, receipt of the four letters in question, and confirmation of the accounts by estoppel by representation. Its main defence was that the goods supplied were of inferior quality, and as a result, it had suffered loss to extent of Rs. 40 lakhs; and such loss was required to be compensated by the respondent. Just casually it mentioned in the said reply that the accounts mentioned by the respondent in his statutory notice were not tallying with those of the appellant-company.
17. It is very significant to note that the only defence, which was taken in the reply to the statutory notice has been abandoned by the appellant-company expressly before us. It also appears that this defence was not really pressed before the learned Company judge. This being the position, it is manifest that the entire defence taken by the appellant-company in its reply to the statutory notice was admittedly a sham and moonshine defence. It will, therefore, be deemed that the appellant-company refused and neglected to pay the respondent's claimed amount, because it was unable to pay the said debt.
18. In the opposition to the said company petition the main defence that was taken by the appellant-company was : the amount of debt as mentioned by the respondent was not correct. The appellant-company disputed the statement of accounts and contended that the exact amount of debt was yet to quantified precisely.
19. We find that the law in regard to such a defence has already been laid down by the Supreme Court in the case of Madhusudan Gordhandas (supra). It was held, by the Apex Court, in that case: where there is no doubt that the company owes the creditor a debt entitling him to a winding up order, but the exact amount of the debt is disputed, the Court will make a winding up order without requiring the creditor to quantify the debt precisely.
20. In our considered view in the present case the appellant-company has failed to raise any real defence whatsoever. In the case of Syndicate Bank (supra) a single Bench of the Karnataka High Court held that: in a case where the accuracy of the claim is only doubted, though the claim itself is not disputed by the company, an order of winding up is warranted. Again it has been held by a single Bench of this Court in the case of Nopany & Sons (supra) that: the burden lies on the company to satisfy the Court as to the existence of a bona fide dispute in regard to the matter in issue. We have seen that in the present case apart from disputing the accuracy of the statement of accounts, the appellant-company did not take any other defence, far less to speak of a bona fide and substantial defence.
21. A passage from 'Buckley' on the Companies Act has been relied on to contend that a winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. As on today, there is no dispute regarding the proposition. There is also no dispute regarding the proposition that: if the company admits the existence of a debt to the petitioning-creditor, and merely disputes the amount of it, an order for a winding up can be made by the Court.
22. In the instant case we find that the debt itself has not been disputed by the appellant-company. What it has disputed is only the amount of debt; and this aspect has partly been taken care of by the learned Company Judge by disallowing a sum of Rs. 53,000 from the claim made by the respondent.
23. Paragraph 25 of the decision in the case of Pradeshiya Industrial and Investment Corporation (supra) has been relied on in support of the contention that there must be a determined amount of debt so as to warrant a discretionary order by the Company Court in terms of Clause(e) of Section 433 of the Companies Act, 1956. It has been contended that if the liability of the company is yet to be determined, an order under that provision cannot be made.
24. We find, this decision does not help the appellant-company in any manner. In the instant case the debt is admittedly a definite sum of money payable immediately by the appellant-company. There was not question of determining the liability through any process. The liability was, almost in its entirety, admitted by the appellant-company by not disputing the correctness of the claims made by the respondent in his statutory notice; and by trying to avoid payment by raising a sham and fictitious defence.
25. In the facts and circumstances of this case we do not find any of the decisions cited by the learned counsel for the appellant to be of any help the appellant-company's case.
26. On the question of assignment of Camellia's debt amounting to Rs. 1,36,027.36: we find that there is no evidence to show that the debt was accepted by the appellant-company. It has been contended by the learned counsel for the appellant-company that in terms of provisions of the Transfer of Property Act, 1882 the benefit of contract is only assignable, the burden thereof is not. For this purpose a passage from 'Mulla' on the Transfer of Property Act, (9th edition, p. 1335) has been relied on. He submitted that Camellia's alleged debt could not be the appellant-company's debt by assignment. It appears, this plea was not at all considered by the learned Company Judge.
27. The question is: could such debt be assigned by Camellia to the appellant-company? Our simple answer is no. The word 'assignment' means the transfer of the claim, right or property to another (see: The Commissioner Gift Tax v. N.S. Getty Chettiar, ). A debt is not a property of the debtor himself; it is his liability. It is, however, a chose in action and is heritable and assignable and is treated as property under the Transfer of Property Act, 1882 which calls it an actionable claim (see: Delhi Cloth & General Mills Co. Ltd. v. Harnam Singh and Ors., ). It is a property of the creditor.
28. In view of the legal position, as briefly indicated above, in our opinion the unilateral assignment by Camellia of its debt-payable to the respondent-to the appellant-company was of no consequences at all, as the appellant-company never accepted such liability en express terms. Therefore, the said sum of Rs. 1,36,027.36 could not be treated as a part of the debt payable by the appellant-company to respondent. Admittedly, this sum was not claimed by the respondent for goods supplied to the appellant-company. The corresponding goods, if any, were supplied only to Camellia which was a separate company, and hence an independent Juristic person. Therefore, if there was any debt, it was payable by Camellia only.
For the foregoing reasons we are of the view that though the learned company Judge was perfectly justified in admitting the said company petition, he should not have admitted it for the whole claimed amount, i.e., Rs. 10,36,353.83. Once he found that out of the claimed amount a sum of Rs. 53.000 had already been paid by the appellant-company, such amount should have been deducted from the claimed amount. The again, we have seen that Camellia's alleged debt amounting to Rs. 1,36,027.36 could not be included in the respondent's claimed amount. This amount could not form part of the amount for which the said company petition could be admitted.
In the result, we allow this appeal in part. The impugned order is modified to the extent that the said company petition will stand admitted for the sum of Rs. 8,47,326.47, and not for Rs. 10,36,353.83; and the respondent will be entitled to make the advertisement, in the event the appellant-company fails to pay the said amount within a period of one month from date. In the facts and circumstances of the case there will be no order as to costs.
T. Chatterjee, J.
28. I agree