Andhra HC (Pre-Telangana)
Bhupinder Investment Company (P) Ltd. vs Midland Industries Limited on 7 August, 1998
Equivalent citations: 1998(5)ALD117
ORDER
1. Heard the learned Counsel of both sides on admission.
2. It is not disputed before me that the petitioner had advanced a sum of Rs. 25,00.000/- to the respondent/company on interest at the rate of 30 per cent per annum. It is also an admitted fact that the respondent/ company had paid an amount of Rs.5,00,000/-through cheque dated 30-12-1995 and Rs-62,151/- through cheque against interest accrued upto 15-1-1996. The respondent/ company has also deposited an amount of Rs.2,00,000/- in the Bank account of the applicant on 19-4-1996. The petitioner on 15-4-1996 issued a legal notice to the respondent/company demanding a sum of Rs.21,80,333/-. After receiving this letter, the respondent/company sent a reply admitting the claim of the applicant, but alleging that it had a feeling that the applicant was interested in settling the matter amicably but had resorted to legal route.
3. The defence of the respondent/ company is that it has submitted a schedule of repayment of the amount due to be paid by it through letter dated 5-4-1996. The petitioner through its letter dated 6-4-1996 wanted the respondent/company to provide more reasonable schedule of payments and arrange for cheques for the revised schedule and had asked the respondent/ company through this letter to agree to its proposal to enable it to settle the matter amicably and at the earliest. It appears that no reply was sent to this letter dated 6-4-1996 by the respondent/company.
4. The learned Counsel of the respondent/company argues that the applicant has virtually agreed for rescheduling the repayment of debts, but wanted the payments to be made with a more reasonable schedule of payments before it could be considered, but the applicant has served a legal notice followed by this application for winding up the respondent/company. It is also argued that due to financial crisis, the respondent/company could not repay the debt in time and he has also offered the learned Counsel of the applicant for now rescheduling the payment of the debts.
5. On the other hand, the learned Counsel of the applicant has argued that even assuming that the applicant had agreed for repayment of the dues as shown in the letter dated 5-4-1996 of the respondent/company, such instalments have not been paid even today and the proposal for rescheduling the payment of debts is now not acceptable to the applicant.
6. From what is stated above, it is evident that the applicant had not agreed to the mode of repayment suggested by the respondent/company through its letter dated 54-1996. Therefore, it cannot be said that the respondent/company has agreed to accept the amount due to be recovered in instalments. The liability is not denied. The amount has not been paid in spite of statutory notice duly served on the respondent/company. Financial crisis in the respondent/company does not appear to be a ground for throwing the application for winding up the respondent/ company.
7. Where the debt is undisputed, but the company persistently neglects to pay, a winding up petition is maintainable even if the company is solvent. Where the company admits its liability but has neglected to pay its debt, a presumption should be drawn that the company has become commercially insolvent.
8. For the foregoing reasons, I reach the conclusion that the respondent/company owes an amount of about Rs. 18,00,000/-besidcs agreed interest and it has failed to repay the same in spite of statutory notice. Therefore, it can be safely inferred that it is unable to pay the debts, particularly in the light of the fact that the instalments, as shown in the letter dated 5-4-1996, could not be paid by it till today.
9. In the case of Kanchanganga Chemical Industries v. Mysore Chipboards Ltd, (1998) 91 CC 646, it is held that to raise a presumption of the Company's inability to pay its debt, it is not enough to merely show that the company has omitted to pay the debts despite service of statutory notice. It must further be shown that the company omitted to pay without reasonable excuse and the conditions of insolvency in the commercial sense exist.
10. In the case of Excel Embroideries v. Trend Designs Ltd., (1998) 91 CC 373, it has been observed that the expression 'unable to pay its debts' in Section 433(e) of the Companies Act should be taken in its commercial sense, that is to say, the Company is unable to meet its current debts. The company should be plainly and commercially insolvent. Its assets and liabilities must be such so as to make it reasonably certain that the existing and probable assets would be insufficient to meet the existing liabilities.
11. Section 434 of the Companies Act reads as under:
"A Company shall be deemed to be unable to pay its debts-(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor;
(b) if execution or other process issued on a decree or order of any Court in favour of a creditor of the company is returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company.
(2) The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by any agem or legal adviser duly authorised on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm."
12. A presumption of inability to pay the debts is drawn under clause (a) of subsection (1) of Section 434 of the Companies Act, when a statutory notice is validly ^ served. It says that in case the notice is not complied with, within 21 days, a presumption would be raised that the respondent/company is unable to pay the debts, because it lias neglected to pay the debt. Under clause (b) ibid, the Company shall be deemed to unable to pay its debts when a decree remains unsatisfied while under clause (c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts. And in determining whether the company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company. Thus, it appears that even in the absence of notice under Clause 434(l)(a), if the applicant proves to the satisfaction of the Court that the company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company. A creditor can claim winding up of the company under Section 433(e) of the Companies Act with the aid of Section 434(l)(a) and/or 434(l)(c) of the Companies Act. If the case under clause 434(l)(a) is not proved, he can prove his case under clause 434(l)(c). Under clause 434(1 )(c), it has to be established that the company is unable to meet its current liabilities as also the contingent and prospective liabilities.
13. If a company, though solvent, refuses or neglects to pay the debts which are not disputed, in spite of statutory notice, can the application for winding up the company be thrown out simply because it has got assets to satisfy the debts? Where the debt is undisputed, the Court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt - vide M/s. Madhnsiidhan Gordhandas & Co. v. Madhit Woolen Industries Private Ltd., . With respect, I am unable to agree with the view taken by the learned single Judge of the Kamataka High Court in the case of Kanchanganga Chemicals (supra) and with the view of the learned single Judge in the case of Excel Embroideries (supra) that the existing liabilities and assets of the Company should be taken into consideration for reaching the conclusion whether the company has become commercially insolvent.
14. In the case of Rishi Enterprises In re., (1992) 73 CC 271, it has been observed mat it is the duty of the Court to allow the company to revive rather than affirm the death of the company. The creditors cannot insist on the winding up of the company by the Court as a matter of right that it would be unable to pay its debts to them even if the company can be resurrected. In this case, it was found that it was in the interest of justice to give the company some time to come out of momentary crisis. This case is distinguishable on facts. The reason is that in that case the re was material on record to conclude that the re were chances for the respondent/company to be resurrected, whereas in the case on hand, as noted above, the respondent/company could not keep up its promises in spite of its letter dated 5-4-1996. There is not material on record to infer that there are chances for the company to be resurrected.
15. It would be apposite to mention that in the case of Excel Embroideries (supra), the respondent/company had denied its liability to pay the debt and had also raised a counter claim for damages on account of failure of the petitioner to effect timely delivery of the goods sold. It was found in that case that the defence raised by the respondent was a bonafide one and there was prima facie proof regarding the genuineness of the dispute. Under these circumstances, it was held that the company cannot be ordered to be wound up. But, in the case on hand, there appears to be no material on record from which it can be inferred that the respondent/company could make out a bonafide dispute regarding the genuineness of the debt in question. As discussed above, the respondent/company could not pay any amount against the debt due even after 20-4-1996 that too in instalments. The respondent/company had taken several adjournments during the pendency of this case to compromise the claim in petition, but it could not do so for want of funds. Thus, even if it is to be assumed that commercial insolvency is to be established before the petition is admitted, it is evident that the respondent/ company has become commercially insolvent.
16. For the foregoing reasons, the petition is admitted. The making of this order should be advertised in one issue of English daily 'Deccan Chronicle' and one issue of Telugu daily 'Vartha' as per rules.
"Operation of the order passed separately on admission is suspended for a period of ten days at the request of the learned Counsel of the respondent as be intends to go in appeal against the impugned order.'"
Call on. 25-9-1998.