Patna High Court
Parry & Co. Ltd. vs India Machinery Stores (P.) Ltd. on 9 August, 1978
Equivalent citations: [1979]49COMPCAS21(PATNA)
JUDGMENT M. Sahai, J.
1. This is a creditor's petition for winding up of a company. Messrs Parry and Company Ltd. is the creditor-petitioner. The India Machinery Stores (Private) Ltd. is the company whose winding up is sought. The India Machinery Stores (Private) Ltd. (hereinafter referred to as " the company ") was incorporated on or about 28th day of July, 1956, under the Companies Act as a private limited company, having its registered office at Exhibition Road, Patna. The authorised capital of the company is Rs. 10,00,000 (ten lakhs). The paid up and/or credited as paid up capital of the company is Rs. 8,91,000. It is not necessary to state the objects for which the company was incorporated. Suffice it to point out that at all material times the company was the distributor of the petitioner in respect of the petitioner's diverse engines/motors for the State of Bihar. In pursuance of orders placed by or on behalf of the company, the petitioner from time to time supplied diverse motors/engines to the company for sale in the State of Bihar. The company made payments from time to time to the petitioner in respect of the said supplies. The petitioner alleges that the accounts by and between it and the company in respect of the aforesaid transactions was maintained on the basis of a running and continuous and/or mutual open and current account, according to the English calendar year.
2. After giving due credits for all payments made by the company, the company owed a sum of Rs. 9,67,284.13 to the petitioner on the 27th of December, 1973. A statement showing the dues, which was prepared by the petitioner and submitted to the company is annexure A to the application. The petitioner alleges that on or about 19th June, 1975, at a meeting held between it and the company, the company duly admitted that the aforesaid sum was due and owing from it to the petitioner and after making diverse adjustments, the company admitted further that a sum of Rs. 3,22,295.53 and a further sum of Rs. 4,43,582.02 were due and owing from the company to the petitioner. Accounts were gone into and/or stated by and between the petitioner and the company on or about 19th June, 1975, and it was agreed between the parties that a sum of Rs. 7,65,879.55, which included the aforesaid sum of Rs. 3,22,297.53, was due from the company to the petitioner. The agreement is evidenced by a statement of account signed by the parties, a copy of which is annexure B to the application. The petitioner admitted that in pursuance of the aforesaid arrangement the sum of Rs. 50,000 (fifty thousand) had been paid by the company which was credited to its account.
3. Thus, after giving due credits for all payments made by the company a sum of Rs. 7,15,879.55 was due from the company to the petitioner. The petitioner agreed by a letter dated 29th March, 1976, addressed to the company to take back certain stocks and adjust the value of the same against the dues of the company. A copy of the said letter is annexure C to the application.
4. On the 20th October, 1976, the petitioner served a notice on the company under Section 434 of the Companies Act, 1956 (hereinafter referred to as " the Act"), and duly demanded from the company a sum of Rs. 13,16,547 inclusive of interest; a copy of the notice is annexure D to the application.
5. In reply to the notice, by a letter dated 11th November, 1976 (annexure E), it is alleged that the company raised false and frivolous disputes with regard to the admitted dues of the petitioner. The petitioner replied to that letter through its advocates, Messrs. Orr, Dignam and Co., by a letter dated 13th December, 1976 (annexure F). The company, however, instead of paying the dues to the petitioner sent a letter dated 7th February, 1977, through its advocate, Mr. Ranjit Prasad, in which it was stated that a sum of Rs. 16,762.04 only was due from the company to the petitioner.
6. As the company failed and neglected to pay the dues of the petitioner within the statutory period as mentioned in Section 434 of the Act, the present petition for winding up of the company has been filed.
7. The company entered appearance at the very stage of admission of the petition and opposed the admission. It relied upon the following observations of the Supreme Court in the case of Hind Overseas P. Ltd. v. Raghu-nath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91 in support of the stand taken by it (page 105) :
" In an application of this type allegations in the petition are of primary importance. A prima facie case has to be made out before the court can take any action in the matter. Even admission of a petition which will lead to advertisement of the winding-up proceedings is likely to cause immense injury to the company if ultimately the application has to be dismissed. The interest of the applicant alone is not of predominant consideration. The interests of the shareholders of the company as a whole apart from those of other interests have to be kept in mind at the time of consideration as to whether the application should be admitted on the allegations mentioned in the petition. "
8. The company, therefore, filed reply to the petition in which it denied that any sum was due against it in favour of the petitioner. It admitted that a sum of Rs. 16,762.04, was found due against the company. The company approached the local office of the petitioner to accept the same which the local office was not prepared to do for one reason or the other. The company, therefore, remitted the aforesaid amount to the petitioner on 25th May, 1977, through cheque No. PTN/2355-45 drawn on the Central Bank of India, Patna. The company stated in reply that part of the alleged dues was to be realised by the petitioner itself from the dealers to whom the machines had been supplied by the company as distributor of the petitioner. With regard to the other part, the company alleged that the petitioner had not given credit to the company for a sum of Rs. 3,61,813.98, the value of the credit notes issued by the petitioner in favour of the company. It also stated that it had deposited a sum of Rs. 15,000 as security with the State of Bihar and this amount as well had not been adjusted towards the dues.
9. In the supplementary affidavit, the petitioner filed a true copy of annexure B which purports to have been signed by the managing director of the company on 19th June, 1975, and that seal of the company was also put on the document (annexure B-1). It also annexed a letter dated 21st April, 1975 (annexure B-2), in which the dues of the petitioner were alleged to have been admitted by the company.
10. For proper appreciation of the rival contentions of the parties, some more facts have to be stated. It will be noticed from the petition itself that the petitioner itself has split up its dues against the company into two parts. One part consists of a sum of Rs. 3,22,295.53 and the other consists of a sum of Rs. 4,43,592.02. This will be apparent from paragraph 8 of the petition itself. There was some reason behind this splitting up which will become apparent on an examination of annexure B or annexure B-1, which is a copy of the statement of accounts regarding the dues of the petitioner against the company as on 19th June, 1975, and which it is alleged was signed by the managing director of the company. In, this account, the total outstanding sum due as on 19th June, 1975, is shown as Rs. 7,65,879.55. This is followed by the following items :
Amount outstanding against dealers as per our letter dated 21st April, 1975, ..... Rs. 3,22,297.53.
11. This is followed by the following item :
Amount agreed by us to be paid by February, 1975...Rs. 4,43,582.02.
12. Thus, these two items made up the total outstanding dues to the petitioner against the company. The dues had been split up to distinguish between the sum which was outstanding against the dealers and the sum which was not outstanding against any dealer. Reference to the letter dated 21st April, 1975, for this statement of account is also quite significant. The letter, as has been pointed out, is annexure B-2 to the supplementary affidavit of the petitioner. The petitioner relies heavily on this letter in proof of the debt due to it against the company. The learned Advocate-General who appeared on behalf of the petitioner made particular reference to paragraph 8 of this letter, which is as follows :
" 8. We accept the liability of the outstanding in our books of account of Kirloskar dealers amounting to Rs. 3,22,297.53. But this amount will be paid by us on realisation of the dues from those from whom these amounts are due. We shall of course be filing necessary suits against these parties for which we hope your co-operation regarding information that may be required in connection thereof will be forthcoming from you. We, however, undertake to settle all the dues on this account, irrespective of the decision of the courts, within December, 1977. In the meantime if you could please assist us in obtaining the payments due to us from Messrs. Agro Trading Corporation, Messrs. Chandralok Cycle Stores, Messrs. Kanhaiya Lal & Co., and Messrs. Mahavir Machinery Stores, who, we understand, are your distributors, this amount can be credited to your account immediately we receive the payment. We are even prepared to authorise you to collect these payments on our behalf.
This will be subject to your accepting the proposal as in point No. 6 above."
13. Reference may also be made to paragraph 10 of this letter which is as follows:
" 10. For the balance amount that will be due to you from us, we shall pay these claims in monthly instalments of not less than Rs. 25,000, commencing from the month, of April, 1975, and clear the entire amount latest by February, 1976."
14. It will be noticed that there is one more distinctive feature between those two items of the dues. The dues which were outstanding against the dealers was agreed to be cleared by the end of December, 1977, whereas the other dues were to be paid by the end of February, 1976.
15. Shri S.G. Ghose appearing on behalf of the company has contended that as the debt was bona fide disputed, the petition for winding up was not maintainable. He has challenged the maintainability of the petition on the grounds that on the allegations made by the petitioner itself it is not even prima facie established that the company had failed or neglected to pay the debt and that the notice under Section 434 of the Act (annexure D) was waived and in any view of the matter it suffered from a total defect. Learned counsel has referred to a decision of the Supreme Court in the case of Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Private Ltd., AIR 1971 SC 2600 ; [1972] 42 Comp Cas 125, 131. Particular reference is made to paragraph 20 (of the report) where it is observed :
" Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company."
16. The learned Advocate-General has also relied upon this decision and has referred to me the following observation in paragraph 21 of the report (at page 131 of 42 Comp Cas) :
" 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 [See In re A Company [1950] 94 SJ 369]. Where, however, 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 [See In re Tweeds Garages Ltd, [1962] Ch 406; [1962] 32 Comp Cas 795 (Ch D)]. 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. " .
17. The company disputes the debt outstanding against the dealers by alleging that it was the petitioner who was required to realise the same from the dealers, and the company had no liability to realise the same from them and to pay the same to the petitioner. As regards the balance amount, the company asserts that no adjustment has been allowed in respect of the credit notes issued by the petitioner in favour of the company to the tune of rupees three lakhs sixty-one thousand and odd. It also alleges that no adjustment has been allowed with regard to the security deposit of Rs. 15,000 made by it on behalf of the petitioner to the State of Bihar and the payment of a sum of Rs. 50,000 made to the petitioner by the company. Now, at this stage, the petitioner has only to make out a prima facie case as pointed out by the Supreme Court in the case of Hind Overseas P. Ltd. [1976] 46 Comp Cas 91 ; the petitioner has produced a copy of the letter written by the company dated 2Ist April, 1975 (annexure B-2 to the supplementary affidavit), in support of its claim. In that letter, the company had expressly taken upon itself to realise the dues from the dealers and it had undertaken to settle all the dues on "that account irrespective of the decision of the courts in the suits which the company was to file against the dealers for realisation of the dues. No specific answer has been given on behalf of the company to explain its commitment in its letter, and I should think that the petitioner has succeeded in making out a prima facie case for the dues which are said to be outstanding against the dealers. As regards the rest of the dues, the company has not produced any material to show that actually credit notes valued at rupees three lakhs sixty-one thousand and odd had been issued by the petitioner in its favour. It was pointed out by the Supreme Court in Madhusudan Gordhandas & Co. [1972] 42 Comp Cas 125 that it is for the company to adduce prima facie proof of the facts on which the defence depends. No such proof has been produced by the company in this case. Therefore, if the company's case were to rest merely on its plea that the debt was bona fide disputed, I would have felt no hesitation in rejecting that plea and in admitting the winding-up petition.
18. Learned counsel for the company, however, has raised two other points for consideration by this court. It is pointed out that on the allegations made by the petitioner itself, the major portion of the debt, namely, Rs. 3,22,297.53, which was outstanding against the dealers was payable latest by December, 1977. This was stated in the letter dated 21st April, 1975 (annexure B-2), which has been referred in the statement of accounts signed by the parties on 19th June, 1975 (annexure B-1). Reference in this connection may also be made to another letter dated 29th March, 1976, addressed by the petitioner to the company. A copy of the said letter is annexure C. Paragraph 5 of the letter is important. It is as follows :
" After taking over your stock, the balance due will become Rs. 1,50,410.63 (Rs. 3,22,297.53 minus Rs. 1,71,886.90). Subject to any adjustment that may become necessary arising out of Sub-para (4) above, which you will clear off latest by December, 1977, but you will make all attempts to liquidate this outstanding earlier. "
19. There can be no doubt, therefore, that this sum of Rs. 3,22,297.53 was payable, latest by December, 1977. Now, the notice under Section 434 of the Act is dated 20th October, 1976, when the aforesaid amount had not become payable. Could it be said that if the company had failed to pay the debt within three weeks of the service of the notice dated 20th October, 1976, it had neglected to pay the debt when in view of the arrangement between the parties the payment of this debt had been postponed till December, 1977 ? I have no doubt that the company cannot be said to have neglected to pay this part of the debt in terms of Section 434 of the Act. It is true that this does not represent the entire debt, but it certainly represents a substantial portion of the same. The winding up of a company cannot be allowed if the company has neglected to pay only a part of the debt.
20. The learned Advocate-General contended that the balance amount of the debt was payable in monthly instalments of Rs. 25,000, and the entire amount under this head was payable by February, 1976. When the company had defaulted to pay this part of the debt the entire debt, it is submitted, became payable at once and the company could not take any advantage of the arrangement postponing the payment of the other part of the debt till December, 1977. I am unable to agree with this submission. There is no suggestion whatsoever either in the letter addressed to the company by the petitioner or in the letter (annexure B-2), dated 21st April, 1975, purported to have been signed by the managing director of the company or in the statement of accounts itself (annexure B-1), that the concession given to the company for the payment of the dues outstanding with the dealers was to be withdrawn if it defaulted to pay the other part of the debt. In my view, therefore, on the facts alleged by the petitioner itself, the company cannot be said to have neglected to pay the debt and, therefore, the winding-up petition cannot be maintained.
21. Shri S.C. Ghosh, learned counsel for the company, also contended that the petitioner had waived the notice of demand dated 20th October, 1976, by making a fresh demand in the letter dated 13th December, 1976 (annexure F). It may be pointed out that in the notice under Section 434 (annexure D), the petitioner had claimed a sum of Rs. 13,16,547 which included a sum of nearly rupees six lakhs as interest. The company replied to the notice by a letter (annexure E), to which reference has been made earlier: The petitioner sent a reply to annexure E in its letter dated 13th December, 1976 (annexure F), and it is on this letter that the company relies for its submission that the notice (annexure D) had been waived. The following paragraphs of this letter are important:
" In the circumstances please note that our clients are no longer interested to wait for the amount indefinitely. We have been requested by our clients to demand of you, which we hereby do, to pay the balance amount of Rs. 7,15,879.55 which was the final amount ultimately arrived at, after a prolonged discussion with you, and after adjusting Rs. 50,000 paid by you after 19-6-1975. Please also note that unless our clients receive this amount within a fortnight from the date of receipt of this letter, our instructions are to proceed against you for the realisation of the amount in the court of law. "
22. It will be noticed that the demand in this letter was slashed down from Rs. 13,16,547 to Rs. 7,65,879.55. Besides when the petitioner agreed to receive the dues even long after the expiry of three weeks from the date of service of the notice of demand (annexure D), in my opinion, it does amount to the waiver of the notice (annexure D). If the company had paid rupees seven lakhs and odd as claimed in the letter (annexure F) within the time allowed in that letter, there could be no doubt that it would have been entitled to get a complete discharge from the debt, owing from it to the petitioner. The notice (annexure D) was obviously superseded by the demand made in the letter (annexure F).
23. The learned Advocate-General tried to contend that, in any view of the matter, the letter (annexure F) could be treated as a .notice of demand under Section 434 of the Act. I am unable to agree with this submission. Firstly, the present petition is based on the notice of demand (annexure D) said to have been made expressly in terms of Section 434 of the Act. Not only no reference has been made in annexure F to any proceeding which could be taken under the Companies Act, but only a fortnight.s time was allowed to the company to pay the dues in this letter which is against the statutory period allowed to a debtor-company to pay the debt after service of notice of demand on it under Section 434 of the Act.
24. In my view, the notice of demand (annexure D) under Section 434 of the Act has been superseded by the demand made in the letter (annexure F) and in the circumstances no winding-up proceeding can be maintained on the basis of the notice of demand (annexure D).
25. For the reasons which I have given above, therefore, the petition of winding up in the present case cannot be admitted and the same is accordingly rejected. The parties will bear their own costs of the hearing of this matter.