Delhi High Court
G.K.W. Ltd. vs Shriram Bearings Ltd. on 8 October, 1998
Equivalent citations: AIR1999DELHI27, ILR1998DELHI855, AIR 1999 DELHI 27, (1999) 1 COMLJ 37, (1999) 1 RECCIVR 146, (1998) 47 DRJ 627, (2002) 109 COMCAS 636
JUDGMENT Usha Mehra, J.
1. The present petition by G.K.W. Limited has been filed seeking winding up order against respondent, primarily on the ground that the respondent company placed order upon petitioner for the supply of diverse quantities of materials of iron and steel. These orders were placed by the respondent company upon petitioner from April 1994 to August 1996. For the sale and delivery of these diverse quantities of materials of iron and steel petitioner raised 23 invoices/bills amounting to Rs. 54,84,784.85 paise. The respondent company paid Rs. 5,77,000/- having the balance of Rs. 49,07,785.85 paise against the outstanding bills. This amount of the bills has not been paid by the respondent company inspite of repeated demands. Finally statutory notice was served on the respondent company. As per petitioner; the respondent company is still indebted to it to the tune of Rs. 49,07,785.85 paise.
2. Respondent challenged the claim of the petitioner on legal grounds as well as on merits. Legal objections relate to the maintainability of this petition. It is the defense of the respondent that since the petition is based on running account, therefore, not maintainable. Secondly the affidavit filed in support of winding petition is not in accordance with Rule 21 of the Companies Rule and Form No. 3. Finally, supply made by the petitioner was irregular and defective, therefore, there exist serious commercial dispute. This Court under the Companies Act cannot adjudicate the dispute. On merits it has been contended that the supply of materials was irregular with the result the respondent company suffered losses. The question of supply of defective material and irregular supply was brought to the notice of the petitioner immediately after the supply was made in September, 1996. That the company is entitled to a counter claim. The petitioner is not entitled to any amount.
3. After hearing counsel for the parties, I have taken up the second legal objection raised by respondent first. Lets examine whether the affidavit filed in support of the petition is in accordance with the rules and the form. Admittedly, the affidavit filed with the petition is not properly verified. Rule 21 of Companies (Court) Rules 1959, deals with the verification of the affidavit to a company petition. Reading of Rule 21 clearly show that the affidavit has to be in Form No. 3. In order to appreciate the arguments, Rule 21 and Form No. 3 are reproduced as under :-
Rule 21.
Affidavit verifying petition. Every petition shall be verified by an affidavit made by the petitioner or by one of the petitioners, where there are more than one, and in the case the petition is prescribed by a body corporate by a Director Secretary or other principal officer thereof; such affidavit shall be filed along with the petition and shall be in Form No. 3. FORM NO. 3 [See rule 21] [Heading as in Form No. 1] Affidavit verifying petition I, A.B., son of ............ aged ......... residing at ..... do, solemnly affirm and say as follows:-
1. I am, a directior/secretary/......../ of ..... Ltd., the petitioner in the above matter *(and am duly authorised by the said petitioner to make this affidavit on its behalf.) [Note.-This paragraph is to be included in cases where the petitioner is the company.]
2. The statements made in paragraphs .....of the petition herein now shown to me and marked with the letter 'A', are true to my knowledge and the statements made in paragraphs...are based on information, and I believe them to be true.
Solemnly affirmed etc. *Note.-To be included when the affidavit is sworn to by any person other than a director, agent or secretary or other officer of the company.
4. Combined reading of Form No. 3 and Rule 21 makes it clear that the person verifying the affidavit has to disclose whether he is Director or Secretary of the company or an authorised person empowered to sign the affidavit. He has also to indicate which of the paragraphs are true on the basis of information received and believed by him. Perusal of the affidavit filed with this petition by Shri Avinash Chawla shows that he was only an Assistant Manager of the petitioner company. He nowhere disclosed how he was competent to verify this affidavit. By mere assertion that he was fully authorised by the petitioner company to sign and verify the affidavit is not enough to conclude that the affidavit has to be signed and verified by a duly authorised person nor it can be said to be in accordance with Form No. 3. Mr. Chawla has deposed in the affidavit that he was well acquainted with the facts and circumstances of the case. Reading of para 2 of the affidavit shows that he has not disclosed which of the paragraphs are based on information derived by him and which were of his personal knowledge. On the contrary reading of para No. 2 of the affidavit shows Mr. Chawla verified the facts of the petition on his personal knowledge:
"Para 2. That I have read the accompanying petition and that the facts stated therein are correct and true to my knowledge."
5. Reading of the petition as a whole show that all the paragraphs could not be based on his personal knowledge. Some paras deal legal submissions, those could not be based on personal knowledge. Similarly, the capital and status of the respondent company has to be based on knowledge and information derived. For some of the paras of the petition he must have derived the information from official record, therefore, could not have been verified on the basis of his knowledge. Such an affidavit, prima facie, cannot be called in accordance with the provisions of Rule 21 and Form No. 3.
6. The question to answer is whether due to such a defective affidavit, the petition is liable to be dismissed? The answer is in the negative. Similar point came up for interpretation before this Court in the case of Roma Deb & Ors. Vs. R.C. Sood and Co. (P.) Ltd. reported in (1987) 2 Comp LJ 174 (Del.). This Court after analysing Rule 21 and other provisions of the Act and Form No. 3 came to the conclusion that if the affidavit originally filed with the petition was not as per Rule No. 21 and Form No. 3, still the Court could in its inherent powers allow the petitioner to present a fresh affidavit in support of his petition in terms of the prescribed Rule and Form. In that case also the affidavit in support of the petition was found to be defective, inasmuch as it had not been properly verified as required under the rules. It was observed that the Court cannot be helpless in a case where the affidavits verifying the petition is not in the prescribed Form. A defective verification is only an irregularity in the procedure but will not be a ground for rejecting the petition. That the defect could be cured at any stage of the suit. To the same effect are the observations of the Supreme Court in the case of Malhotra Steel Syndicate Vs. Punjab Chemi-Plants Ltd. reported in 1993 Supp. (3) Supreme Court Cases 565. In that case also the affidavit filed in support of the winding up application was found to be defective. The Apex Court found that the verification did not contain the averments which were required under the Rules. Still the Apex Court held that even if there was slight defect or irregularity in the affidavit the applicant ought to have been given opportunity to rectify the same. The order of the Division Bench dismissing the appeal on the ground of defective affidavit was set aside. Opportunity was given to that petitioner to rectify the defect in the affidavit.
7. Taking support from the above decisions, it can be said that though there is a defect in the affidavit accompanying the winding up petition still the petition cannot be thrown out. Opportunity has to be afforded to the petitioner to file a proper affidavit in accordance with the Rule and the Form prescribed therein. Order accordingly. The petition is given opportunity to file a fresh affidavit within two weeks from today.
8. Turning to the question as to whether the petition can be rejected on the ground that it is based on running account? Counsel for the company placed heavy reliance on the facts stated in the suit filed by the petitioner before the Civil Judge, Howrah, listed as Money Suit No. 16/97. In para 7 of the said suit it has been pleaded as under:-
7. Parties have always treated the account as one, open, current continuous and running.
9. Much stress, has been laid on the contents of paras 7, 17 and 18 of the plaint where the present petitioner averred that the account was current, continuous and running one. Reliance was also placed on para No. 18 dealing with cause of action. The petitioner in para No. 18 has alleged that cause of action against the present respondent accrued from 10th April, 1994 to 31st August, 1996 and further as and when the goods related to the invoices were received by the defendant. Relying on these averments. Mr. Sanjiv Puri contended that the cumulative effect of the reading of these three paragraphs namely 7, 17 & 18 show that this petitioner had based its claim on running account. Therefore, this petitioner cannot now turn around and say that its claim is based on invoices or the purchase orders. According to the respondent company for running accounts also there have to have bills and invoices for the payment of which credit has to be given in the running account. In the present case simply because invoices or purchase orders were issued will not change the nature of the case from running account to that of bill transaction. Since the petition is based on running account it is liable to be dismissed. Petitioner has already invoked the jurisdiction of Civil Court which is a proper forum. To support his contention he placed reliance on the decision of this Court in the case of Rishi Pal Gupta Vs. S.J. Knitting and Finishing Mills (P) Ltd. reported in (1994) 1 Comp. LJ 343 (Delhi), as well as on the decisions in the Company Petition No. 27/91 decided on 22nd February, 1995 and Company Petition No. 191/87 decided on 8th February, 1988.
10. Refuting these arguments Mr. Rajiv Nayyar, Senior Advocate, appearing for the petitioner contended that the statement of accounts which have been filed along with the petition would show that the respondent company had been making payment against individual invoices. To support his argument he drew the attention of this court to the invoice dated 10th April, 1994 for Rs. 2,44,185.93 paise. The respondent paid this amount within the allowed credit period. Against the invoice dated 14th November, 1994 amounting to Rs. 1,83,570.36 paise, the company paid Rs. 1,28,452.41 paise within the credit period leaving a balance of Rs. 55,117.95 paise. Similarly, for the invoice dated 29th April, 1995 for Rs. 1,88,777.89 paise company paid a sum of Rs. 1,86,230.66 paise, leaving a balance of Rs. 2,547.23 paise. For the invoice of 19th July, 1995 amounting to Rs. 3,15,685.80 paise, company paid Rs. 3,14,481.81 paise leaving a balance of Rs. 1,203.99 paise. For the invoice of 14th February, 1996 amounting to Rs. 3,99,097.72 paise, company paid Rs. 9,98,571.50 paise leaving balance of Rs. 526.22 paise, meaning thereby that there was no running account. The company had been making payment against individual invoices raised. Had it been a running account the company would not have paid specific amount against a specific invoice? For the remaining 18 invoices since no amount was paid, therefore, demand, notice was served. The fact that the demand was based on individual in voices is also apparent from the statements sent to the company along with the petitioner's letter dated 3rd April, 1995 indicating outstanding amount as on 1st April, 1995. Vide letter dated 15th May, 1995 outstanding amount as on 15th May, 1995 was also indicated to the company. In these statements, the payments which were received against various invoices were adjusted leaving the balance amount due. These letters along with the payment outstanding have been placed on record along with rejoinder to show that the claim was not based on running account but due to non payment of the amount against individual invoices raised on the respondent company. It was also urged that merely because in para 7 of the suit it had been mentioned that parties treated the account as open, current continuous and running will not change the basis of the suit which had been filed on the basis of non payment of the amount against the purchase orders. Attention of this Court was also drawn to para 5 of the plaint where it had been mentioned that plaintiff was claiming amount of the goods sold and delivered against 21 invoices and 2 supplementary invoices. He further contended that reading of the plaint as a whole show that plaintiff's case was based on the invoices and purchase orders. That the use of the words open, current and running account pertained to the nonpayment of money against those 23 invoices raised on the respondent company. Paras 17 and 18 cannot be read in isolation. Since full payments of the invoices had not been received it was in that context account was stated to be continuing and so was the cause of action.
11. I find substance in the arguments of Mr. Rajiv Nayyar. The mere fact that in para 7 of the plaint it was mentioned that the account was open, current continuous and running would not make any difference. Reading of the plaint filed at Calcutta show that plaintiff therein relied for his cause of action on the non payment of the amount of the invoices. The suit is based on 23 invoices against which part payment was made. Since remaining payment was not made, therefore, that suit. I am not dealing with the merits of that suit. Suffice it to say that reliance on paras 7, 17 & 18 of that plaint is of no help of respondent Company. In the winding up petition the petitioner has based his claim on the invoices raised against the company. Respondent company has not denied issuing of purchase orders and raising of invoices by the petitioner. The matter does not end here, respondent vide his letter dated 15th November, 1996 in a way admitted its liability. Company regretted the delay in payment of dues due to poor production and sales for want of material. It was further averred in that letter that on account of fund flow position it was not viable for the company to make payment exactly on due dates. Similarly in its letter dated 9th March, 1995, respondent company not only admitted liability but expressed its inability to make payment on account of unavoidable reasons and assured this petitioner that payment would be released from April, 1995 as usual. Again vide letter dated 31st July, 1996 by a FAX message respondent company expressed its inability to make payment due to some unforeseen circumstances even though commitment was made to make payment by 10th August, 1996. Rather company placed further order of its requirement on the petitioner for the month of August, 1996. Reading of these letters makes interesting reading. These letters show that respondent company in no uncertain terms admitted its liability but on account of financial or other difficulties expressed its inability to discharge its debt. Perusal of these letters makes it apparent that no complaint of any kind and in particular of supply of material or defective material was lodged by the respondent earlier. On the contrary as already pointed out above vide letter dated 31st July, 1996 further order indicating its requirement for the month of August was placed on 31st July, 1996. Therefore, the argument of Mr. Sanjiv Puri that the payment was not made on account of delay in supply of material appears to be after thought and not bona fide. It is not born out from the record nor has been supported form any letter written prior to the demand raised by the petitioner. Moreover, the letter of November, 1996 issued by the company does not indicate that the respondent lodged complaint for irregular supply and or defective supply earlier. Moreover, the company neither filed a counter-claim nor instituted a separate suit against this petitioner claiming losses. In its letter dated 23rd April, 1997 company had taken the plea that due to delay in delivery there was production loss for which debit note would be issued against the petitioner. But according to petitioner till date no debt note has been issued. Petitioner sent reply to the letter of the company denying any delay on its part. In one of its letter petitioner suggested that in order to prove its bona fide, petitioner was prepared to discuss the matter provided respondent pays a bank draft of Rs. Ten lakhs. This petitioner was prepared to accept the above amount without prejudice to its legal notice dated 15th April, 1997. In reply the respondent vide letter dated 11th June, 1997 agreed to settle the matter in a peaceful and mutually satisfying manner and offered to pay Rs. Five Lakhs instead of Rs. Ten Lakhs as suggested by the petitioner. Reading of this letter dated 11th June, 1997 issued by the company would show that the present defense is not bona fide. The respondent would not have made such an offer nor would have come for discussion if there had been any fault of the petitioner rather company would have put up a counter-claim which he did not do. Therefore, at this stage prima facie it can be said that respondent company's defense is without substance.
12. Reliance by counsel for the respondent on the decision of this Court in the case of Rishi Pal Gupta Vs. M/s. S.J. Knitting and Finishing Mills Pvt. Ltd., and CP.No. 27/91 and CP. No. 191/87 is of no help to him. This matter went in appeal. It was listed as Company Appeal No. 32/93. The Division Bench vide order dated 29th November, 1995 while remanding the case observed that once there is an admission on the part of the respondent company of liability of dues payable then petition under Section 433 of the Companies Act cannot be dismissed on the technical ground that it is based on running account. The Division Bench further observed that once the liability had been acknowledged by the company in its reply then whether the petition is based on running account or not is if no consequence. In the present case also company admitted its liability which I have already discussed above. Therefore, relying on the observations of the Division Bench to the facts of this case, it cannot be said that the petition is maintainable. On this ground also I find no merits in the contention of the respondent.
13. As already pointed out above the defense of the respondent company that there was delay in supply of the material or that the material supplied was defective does not cut any ice. This appears to be an after thought defense taken up with the motive to escape its liability to pay the debt. In fact nothing has been placed on record to substantiate this defense. In similar circumstances, Punjab & Haryana High Court in the case of Chhabra Steel Strips (P.) Ltd. Vs. Haspa Wheels Pvt. Ltd., Vol. 86 1996 Company Cases page 703 held that in the absence of any evidence indicating that the quality of goods was ever objected to at any point and in the absence of any evidence suggesting that the company ever made a complaint to the petitioner regarding quality of goods supplied, the company had to be held unable to pay its debts and the provisions of Section 433 of the Companies Act gets attracted. Similar view was taken in the case of Jyoti Prasad Bala Prasad Vs. A.C.T. Developers (P.) Ltd., Vol. 68 (1990) Company Cases page 601 wherein it was observed that even with regard to the question of delay if the company took delivery of the consignments without any demur and the consignment was accepted then the company could not raise such a defense that there was delay in supply of material or it was defective. This observation squarely apply to the facts of this case. The company failing to pay the price of goods and disputing the quality, delay and the rate at which material was supplied appears to be not bona fide defense as such a plea was never raised earlier nor any counter-claim having been filed the defense appears to be motivated. The company took the delivery of the goods without any demur rather placed further orders indicating its requirement. This shows that the defense now raised is not bona fide. The property in goods having been passed on to the company it has to pay the price of the same.
14. For the reasons stated above, I find no merits in the objections raised by the respondent company.
15. The petition is admitted.
16. Citation is ordered to be published in the newspaper "Statesman" (English edition), "Jan Satta" (Hindi edition), "Veer Arjun" (Hindi edition) as well as in Delhi Gazette.
17. That Official Liquidator attached to this Court is appointed as the Provisional Liquidator of the Company. He is directed to take into custody and possession the assets, stocks, and books of accounts of the respondent company immediately and prepare inventory of the same.