JUDGMENT
Arun Kumar Goel, J.
1. This is a petition filed under Sections 433,434 and 439 of the Companies Act, 1956, with a prayer to compulsorily wind up the respondent-company, namely, M/s. Himachal Futuristic Communication Limited having its registered office at 8, Electronics Complex, Chambaghat, Solan, H.P.
2. Admitted facts of the case are that both, ie., M/s. Haryana Telecom Limited, also a company incorporated under the Companies Act, 1956, having its registered office at Kherishadh, District Rohtak, Haryana (hereinafter referred to as the ‘Petitioner-Company’), and M/s. Himachal Futuristic Communication Limited, having its registered office at 8, Electronics Complex, Chambaghat, Solan, H.P. (hereinafter referred to as ‘the respondent’), were having business dealings. During the course of their such business dealings, petitioner, who is manufacturer of Polythene Insulated Jelly Filled cables (hereinafter referred to as ‘PLIF cables’) supplied these cables to the respondent. These in turn were supplied by the respondent to HFCL Infotel Limited.
3. At the time of hearing, it was not disputed between the parties that goods of the value of Rs. 7,14,15,554 were supplied by the petitioner to the respondent. Against those, payments have been made from time to time. Now the trouble starts. Petitioner claims a balance outstanding from the respondent in the sum of Rs. 98,37,982. Whereas, no amount is due and payable according to the respondent. Rather, as per the respondent, amount is payable by the petitioner to it because of the defective material supplied, as is evident from the letter dated 15-1-2003, received from its purchaser to whom the material purchased from the petitioner was being supplied by it (the respondent).
4. It is further case of the respondent that vide Annexure R-1, dated 27-2-2003, this position was highlighted to the petitioner with reference to the terms and conditions subject to which purchase orders were placed for purchase of the aforesaid PIJF cables. This resulted in issuing of debit note by the respondent to the petitioner in the aforesaid sum.
5. Since the balance outstanding amount was not being paid by the respondents, despite having acknowledged the liability, and also despite the notice under Section 433 of the Companies Act, 1956, having not been replied, present petition has been filed. Case of the petitioner is that since the respondent has not been able to pay its debts within the meaning of Section 433(e) of the Companies Act, and having further neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the petitioner, presumption of its being unable to pay the debt under Section 434 of the Companies Act, needs to be raised and then winding up order passed.
6. With a view to show that amount is acknowledged, Shri Kanwar referred to Annexures P-3 to P-5. According to him, a perusal of these documents as well as those filed with the rejoinder clearly suggest that goods supplied by his client were to the satisfaction of the respondent and the balance outstanding amount having been admitted, plea of goods being of inferior quality now set up by the respondent and, thus, it being not liable to pay the outstanding amount coupled with it not replying the notice under Section 433 of the Companies Act, is nothing but purely an afterthought. In the peculiar facts and circumstances of this case, therefore, winding up order needs to be passed.
7 Further according to Shri Kanwar, this petition was filed on 9th December, 2002. Respondent appeared before this Court on 9-1-2003 when following order was passed :–
Mr. Gupta, learned Counsel for the respondent, has handed over a cheque bearing No. 209878 dated 12-12-2002 favouring petitioner in the sum of Rs. 25 lakhs drawn on Bank of Punjab at its New Delhi Branch. This cheque has been accepted on behalf of the petitioner without prejudice to the rights and contentions by learned Counsel Mr. Bimal Gupta. At the same time, Mr. Gupta, learned Counsel for the respondent, stated that by paying this amount, his client is neither admitting nor conceding the claim of the petitioner made in this Company Petition and at the same time is showing its bona fide to contest the claim made in this petition. This matter will be looked into as and when the petition is taken up for hearing….
8. For the first time after having put in appearance and having paid sum of Rs. 25 lakhs in terms of the above order, plea of goods being defective was raised on 27-2-2003. As such, no benefit can be derived from it so-called stand that the material supplied was defective. Along with reply filed to the Company Petition by the respondent, an application under Section 8 of the Arbitration and Conciliation Act, 1996, was also filed being Company Application No. 7 of 2003. According to the respondent, matter was referable for arbitration. After having been put to notice, reply has been filed and this application has been contested and resisted on behalf of the petitioner.
9. When matter came up before the Court on 27-3-2003, a sum of Rs. 72,10,855 was tendered in Court by means of Bank Draft favouring Registrar General of this Court. Following order was passed on this dated:–
When this matter came up for consideration today and before hearing could commence, a bank draft bearing No. 527585 dated 26-3-2003 issued by Corporation Bank, Delhi Caps in favour of its Shimla Branch in the sum of Rs. 72,10,855 favouring Registrar General of this Court has been tendered on behalf of the respondent-company. At the same time, it was stated on behalf of the respondent-company that this amount is being offered without prejudice to its rights by the respondent, in the present proceedings as well as without in any manner either admitting or conceding its liability towards the claim of the petitioner-company. It was further stated that instead of respondent-company being liable to pay anything, it is the petitioner-company who owes substantial amount on account of defective material supplied.
On the other hand, learned Counsel appearing for the petitioner-company seriously contested the so-called liability of his client for payment of any amount to the respondent. At the same time, it was reiterated that the amount shown in Annexure P-6 at page 15 of the petition is due, outstanding and payable by the respondent besides up to date.
So far liability to pay interest claimed on behalf of the petitioner is concerned, it was submitted in the alternative on behalf of the respondent that even if it is assumed for the sake of argument that there is any liability for the same, it is not clear as to from which date it is payable, on what amount and at what rate. As such, these are questions raising contentious issues. So this petition is not tenable. So far tender of this amount is concerned, it was clarified that this is being deposited in the Registry of this Court by the respondent, to show its bona fide as also to demonstrate that without there being any ground under Section 433 of the Companies Act, 1956 being attracted to the facts of this case still it is being deposited, of course subject to what is stated above.
Be that as it may. Let this amount be deposited in the Registry of this Court and its disbursement will abide by the final outcome of this winding up petition. This amount together with interest accruing on it shall enure for the benefit of the successful party. Ordered accordingly.
So far Company Application No. 7 of 2003 is concerned, let reply be filed by the petitioner within six weeks, rejoinder, if any, within next four weeks and the said application be listed after expiry of 10 weeks. During this period petitioner may file rejoinder if so advised.
10. Amount is lying in deposit.
11. In the aforesaid background, the primary question involved in this case is, whether on the pleadings of the parties in this case, there is bona fide dispute or not. Similarly, whether because of not replying to the notice under Section 433 of the Companies Act, respondent-company is liable to be wound up by raising presumption under Section 434 thereof.
12. Supply of goods and payments being made from time to time, as noted hereinabove, is not disputed. Even Annexures P-2 to P-4 were not disputed at the time of hearing on behalf of the respondent. What is disputed, is that because of inferior quality of goods, amount is not payable to the petitioner as per terms and conditions of the supply orders, subject to which the goods were purchased by the respondent. Though these terms and conditions were not accepted by the petitioner, still in the alternative it was pointed out that even if those are treated as part and parcel of the purchase orders, still no benefit can be derived by the respondent. With a view to support the plea that the supply was subject to terms and conditions accompanying the purchase orders, reference needs to be made to Annexure R-7. In the purchase order, Note No. 4 reads as under :–
4. Terms and conditions are enclosed herewith.
13. Terms and conditions of the purchase order are :–
Terms and conditions.–(1) All materials are subject to final acceptance after physical inspection at our place. Signing of Challans shall not constitute acceptance of materials.
2. The goods ordered must be supplied in accordance with the specification, stipulation and instruction given herein and are to be supplied within the time specified. The elements of time and quality being the essence of this contract any deviation on the part of the seller as to time and /or quality will entitle the purchaser to any of the following options :
(a) To reject the goods or part thereof and/or repudiate the contract without prejudice to the right of the purchaser to recover all consequential losses arising therefrom.
(b) Without serving any notice the purchaser reserves the right to procure the materials from elsewhere at seller risk and cost in the event of failure to deliver the materials within time and/or according to the specification and/or terms and conditions specified.
(c) To debar the seller from being considered for supply of materials of the purchaser.
3. The purchaser may at any time appropriate from money due to the seller on any account whatsoever the whole or part of any claim including that for loss or damage which the purchaser may have against the seller on any account whatsoever.
4. Rail / Road transport receipts or Bill of Lading together with supporting Challan must be submitted to the purchaser latest by the working day following the indicated on such instrument. In the event of any delay it is hereby agreed that the seller will remain responsible for any loss or damage caused due to such delay.
5. Any alteration in the contract will not be valid unless confirmed by the purchaser in writing under authorized signature. The onus for obtaining necessary amendment will lie on the seller.
6. All the rates indicated overleaf are inclusive of cost of delivery of the purchaser’s City office unless otherwise specified.
7. The contract shall be deemed to have been made in New Delhi and any dispute arising therefrom will be subject to Delhi jurisdiction only.
8. The seller must give guarantee as regards performance of goods supplied and also guarantee against sub-standard quality of materials, manufacturing and other defects whether manufactured by him or not. Any of the defects as mentioned above detected even after the issue of G.R. Note will make the supplier liable and constitute cause of action as provided in the Clause 2 above.
9. Tax will be deducted at source wherever applicable.
ACCEPTANCE If we do not hear anything from you within 10 days from the dispatch of the order shall be deemed to have been accepted.
PRICE Except as otherwise agreed in writing your price shall remain firm during the period of supply.
PACKING Material should be securely packed for Rail/Road transit to reach final destination of the consignee in safe and sound condition.
CANCELLA TION We reserve the right to cancel the order in part or in full without liability in event of failure to deliver the goods within the time and/or according to the specifications and/or terms and conditions specified in the order.
PAYMENT( 1) Payment prior to inspection of material shall not constitute an acceptance thereof.
(2) If the quantity received is in excess of the quantity ordered, payment will be made only for the accepted quantity.
(3) Bill in quadruplicate along with the original receipted challan must be submitted for payment to the Accounts.
REJECTED MATERIAL All rejected material will remain in our city Office at our risk and cost from period not exceeding 21 days from the date of such advice to you and you shall arrange for their disposal at your cost. If the rejected materials are not collected by you within the aforesaid time, we shall be entitled to charge ground rent as well as to dispose off them and remit the amount thereon to you after retaining the actual disposal cost incurred by us.
ARBITRATION Notwithstanding anything contained in any other law for the time being in force, all disputes between the parties in any way touching or connecting this agreement shall be referred to Arbitration of two Arbitrators, one to be appointed by each party. Such arbitration shall take place in Delhi in accordance with the provisions contained in the Arbitration Act, 1940 or any statutory modification thereof.
14. Petitioner has placed on record the copies of purchase orders. These are at pages 210 to 221, Annexures P-9 to P-15. As per these purchase orders also in Note No. 4, there is a mention of terms and conditions enclosed therewith. One of such purchase order is dated 14-9-2000. It is Annexure P-9 at page 211 of the file. By referring to Annexures P-17 to P-34, it was urged by Shri Kanwar that none of the materials supplied, was ever rejected by the respondent. In this behalf it was also urged by referring to the re-joinder, that the cables manufactured by the petitioner were tested by the Inspector/Engineer/Representative deputed by the respondent, and were as per technical specifications provided in the purchase orders. It was only thereafter that PDF cables were despatched after acceptance of test certificates released by the nominated Inspector/ Engineer of the respondent.
15. The aforesaid plea for the reasons to be recorded hereinbelow cannot be accepted in the face of the terms and conditions subject to which purchase order was placed by the respondent with the petitioner. Further ordinarily the respondent should have sent reply to notice under Section 433 of the Companies Act, Annexure P-6 dated 21-10-2002, however, this omission by itself is also not enough to order winding up of the respondent-company.
16. Fact of payment made to the extent of Rs. 25 lakhs on 9-1-2003, and subsequent deposit of further amount in this Court on 27-3-2003, clearly indicates that the amount if any due and outstanding as well as payable by the respondent to the petitioner, respondent was in a position to liquidate. Language of the order dated 9-1-2003 does not prevent this Court to see its effect and further come to the conclusion whether by tendering Rs. 25,00,000 it accepted the liability or admitted to be indebted to the respondent to call its winding up.
17. Deposit of the amount on 27-3-2003 by the respondent is indicative of the fact that it is commercially and financially on sound footing. As such, to say that the plea of bond fide dispute being there is merely a camouflage, is not correct. Similar was the stand of Shri Kanwar regarding respondent being as a going as well as a sound concern providing employment to numerous persons. Per Shri Kanwar, respondent’s financial worth has nothing to do with its inability to liquidate its liabilities. Reference was made to a number of decisions to advance the plea that there is no bona fide dispute in the facts and circumstances of this case, and even if it be assumed for the sake of argument that the respondent is commercially solvent company, still in the background of admitted facts of this case, order of winding up needs to be passed.
18. Another fact that needs to be noted here is that vide Company Application No. 7 of 2003, a prayer was made by the respondent to refer the matter for arbitration as per terms and conditions of purchase order placed by the respondent with the petitioner. This application is also contested on behalf of the petitioner. As according to Shri Kanwar, there is no arbitration agreement between the parties. Alternatively and without conceding, he urged that it will not effect the decision of present winding up petition. Reason being, that the Arbitrator in no circumstances can decide the matter relating to winding up as claimed in this petition. As under the Companies Act, 1956, he has no jurisdiction to go into this question. As such, arbitration clause, supra, cannot be pressed into service by the respondent for ouster of jurisdiction in this company petition.
19. As noted above, stand of the respondent is that it is commercially solvent and the facts detailed in the reply coupled with documents attached with it, do not justify the exercise of discretionary jurisdiction vested in this Court for its winding up under the Companies Act. By withholding the terms and conditions of the purchase orders, petitioner has disentitled itself from obtaining equitable and discretionary relief in maintaining the present petition.
20. It was further pointed out on behalf of the respondent that the purchases made from the petitioner were subject to contract between the parties as per terms and conditions extracted hereinabove. Present petition is nothing, but an abuse of the process of law and the Court aimed at forcing the respondent to make payment for the defective materials supplied in view of Annexure-1 attached with Company Application No. 65 of 2004, allowed vide separate order of the date.
21. It was also pointed out that the present proceedings cannot be used as a substitute for the ordinary remedy to recover its so-called outstanding dues, if any, by the petitioner. Though it is not entitled for any amount from the respondent. Rather it is other way round. Dispute being bona fide, is sufficient to negative the claim of the petitioner. By referring to Section 8 of the Arbitration and Conciliation Act, 1996, it was urged on behalf of the respondent that the Court is bound to refer the dispute to the Arbitrator. In the face of Arbitration clause being there between the parties, this winding up petition cannot be maintained by the petitioner and the matter needs to be dealt with by allowing the prayer made in Company Application No. 7 of 2003. Reply to notice under Section 433 of the Companies Act, having not been sent by his client by itself cannot be made a ground for allowing this petition, as per learned Counsel for the respondent.
22. Petitioner claimed to have supplied material, ie., PIJF cables to the satisfaction of the respondent. It is purely a question of fact. In view of the terms and conditions of the purchase order extracted hereinabove, materials supplied by the petitioner to the respondent were subject to final acceptance after physical inspection. And respondent was to give guarantee as regards performance of goods supplied and also guarantee against sub-standard quality of materials, manufacturing and other defects whether manufactured by it or not. Any of the defects as mentioned above being detected even after issue of material would make the supplier liable and constitute cause of action as provided in clause 2.
23. This is in the nature of performance guarantee on the part of the petitioner qua goods supplied by it to the respondent in terms of purchase order. In this context it may also be appropriate to notice that along with rejoinder only Photostat copies of the purchase orders are attached and not the terms and conditions. This shows that terms and conditions have been prima facie withheld subject to which supplies were being made by the petitioner to the respondent.
24. Respondent is a going concern and appears to be commercially solvent. Amount as claimed due by the petitioner, though specifically disputed and controverted by the respondent, has been partly paid in Court on 9-1-2003 to the petitioner, ie., Rs. 25 lakhs. Further substantial amount was deposited in this Court on 27-3-2003. In such a situation, claim of the petitioner that the respondent is unable to pay its debts and it will be just and equitable to order winding up of the respondent-company, would not be correct.
25. Suffice it to say in this behalf that if prayer made by the petitioner is allowed and petition is ordered to be advertised, as required under the Companies Act, 1956 and the Rules framed thereunder, it will lead to financial ruination of the respondent. Balance sheet placed on record clearly shows that the respondent is not only commercially solvent, but is also a going concern. Running payments have admittedly been made from time to time to the petitioner.
26. Problem started, when the purchaser from the respondent to whom PIJF cables supplied by the respondent complained of those being defective. In these circumstances to say that there is no bona fide dispute, will not be correct.
27. In this view of the matter no benefit can be taken from the decisions relied by Mr. Kanwar, on behalf of the petitioner, in Hind Hosiery Mills (P.) Ltd v. Anand Chemicals Co. [2003] 115 Comp. Cas. 739 : [2004] 50 SCL 46 (Cal.); DLF Industries Ltd v. Essar Steel Ltd. [2001] 103 Comp. Cas. 467 (Guj.); Texcon Energies v. Euro Cotspin Ltd. [1999] 96 Comp. Cas. 752 (Punj. & Har.); Essar Gujarat Ltd. (Steel Division) v. Shree Kangra Steels (P.) Ltd. [1999] 97 Comp. Cas. 726 (Guj.). These decisions do not advance the case of the petitioner. Since these decisions are clearly distinguishable from the facts of the present case. It is clarified that so far principle of law laid down in these decisions is concerned, there can hardly be a dispute.
28. So far the judgments of Texcon Energies’ case (supra) and Hind Hosiery Mills (P.) Ltd. ‘s case (supra), are concerned, both decisions are on their own facts, as such they are not helpful to the case of the petitioner in any manner.
29. So far decision in the case of DLF Industries Ltd. (supra) is concerned, on the facts of that case after examining as to how the matter is to be dealt with, it was observed as under:
Where 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; a winding up petition is a perfectly proper remedy for enforcing a just debt but it is not the normal alternative to the ordinary procedure. Propriety does not affect the power but its exercise; if however the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the company; if a debt is bona fide disputed, there cannot be a neglect to pay within the meaning of Section 434 of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into application; the petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed.
Held accordingly, on the facts, (i) that there was a bona fide dispute with respect to the claim put up by the petitioner and the claim could not be said to be definite, ascertained and admitted.
(ii) That there was an alternative forum and the petitioner-company had already invoked the arbitration clause. The petitioner had itself chosen to take the alternative remedy and had subsequently chosen to file this petition.
(iii) That it was also stated in the petition that the company had become commercially insolvent and it was in public interest to wind it up. This submission was advanced on the basis of reports in some magazines. On the basis of the material on record it could not be said that the petitioner had made the submission good. Hence, the ground under Section 433(e) read with Section 434(1)(a) of the Act was not available to the petitioner.” (p. 467)
30. In the case of Essar Gujarat Ltd. (supra) what was held by this Court is relevant for determining this case is extracted hereinbelow :
It is well-settled that a winding up petition cannot be used to seek enforcement for the realization of debt where there exists a bona fide dispute. The company Court is required to judge whether the defence put up by the company is bona fide and is in good faith. It has further to be kept in view that the defence is one of substance and the defence taken is prima facie likely to succeed.
The company Court, while hearing a petition under Section 433(e) of the Companies Act, 1956, has a summary jurisdiction. It has no power to assess evidence.
Held accordingly, on the facts, that supplies by the petitioner continued till April 3, 1993. Till this date the respondent never made any grievance to the petitioner in respect of the late supplies or that the supplies were substandard and defective. The respondent-company in its reply to the notice as well as in the reply to the petition had raised a dispute which, on the face of it, could be said to be an afterthought. The respondent had accepted its liability. The respondent-company never disputed the correctness in respect of the rate of interest as claimed by the petitioner. The dispute which was being raised did not appear to be bona fide and the pleas raised in defence besides being an afterthought were vague. The respondent was to have time to pay the dues, failing which the petition was to be advertised. (p. 726)
31. In the instant case, it is only on receipt of intimation from its purchaser by the respondent that the payments have been withheld. Otherwise admittedly substantial amount was paid till this complaint. In case respondent was unable to pay debt, it would not have made any payment as admitted between the parties and noted hereinabove.
32. Respondent is not commercially viable, for this reliance was placed by Mr. Kanwaron Ranbaxy Laboratories Ltd. v. M.S. Shoes East (I) Ltd. [1998] 93 Comp. Cas. 296 (Delhi). In this case, it was held that it is only in case where the company has raised a bona fide dispute about its liability to pay that the Court may not entertain the petition for winding up. But in cases where liability is not disputed, nor proposed any scheme for consideration to the Court to show how it intends to pay its admitted debts, the company cannot be permitted to contend that the petition should not be admitted as the company has assets, which if sold will realize more money than due to the petitioner. On these facts it was further held that admittedly company was not able to meet its current demands, the assets which were allegedly owned by the company were in dispute, the creditors were not opposing the admission of the petition, the company had been given sufficient time to come out with a scheme of repayment and in spite of the undertaking given by its director to the Court to repay in instalments commencing from April 1996, no amount had been paid to the petitioner. It was in this background and circumstances that winding up order was passed.
33. In Ema India Ltd. v. Trackparts of India Ltd. [200l] 106 Comp. Cas. 700 (All), the question before the Court was that debt was acknowledged by Director in compromise settlement inter se Directors and compromise settlement was acted upon and as such was binding on the Company and petition on its basis was held to be maintainable. Company though claiming to be solvent but failing to pay pursuant to statutory notice by taking up the plea that sum payable was only at its convenience. It was in this background that defence was held not bona fide and petition was ordered to be admitted and was further time allowed to show its bona fide.
34. So far decision in Ficom Organics Ltd. v. Laffans Petrochemicals Ltd. [2000] 99 Comp. Cas. 471 : [1999] 20 SCL 266 (Guj.) is concerned, it is a judgment of its own facts and, therefore, no benefit can be derived by the petitioner from it.
35. In the commercial world ups and downs in business are well-known. Therefore, even if in a case where the Company is otherwise financially viable, commercially solvent and is providing employment to number of persons directly as well as indirectly, then in a given situation winding up would not be ordered. Reason being that a winding up order completely changes the complexion of the company because management passes on from Directors to the Official Liquidator or to an Administrator.
36. A winding up petition cannot be allowed to be maintained for collateral purpose. Reason being that in the event of discretion being exercised in favour of a creditor like the petitioner in the present case, it will cause immense prejudice to the respondent. It being in the nature of death sentence of a juristic person had to be adhered to in rarest of the rare cases. Discretion vested in the Court to order winding up should not be exercised even where there is a slight hope of revival of the company. Besides this, the dispute as to the quality of goods supplied in the present case being of bona fide nature, this petition is not maintainable. In the instant case, the respondent claims that due to defective goods supplied by the petitioner, as a result of which purchaser from the respondent has issued a debit note against the respondent in respect of the PLJF cables supplied by the petitioner. In these circumstances to say that there is no bona fide dispute between the parties, will not be correct.
37. Whether the goods, ie., PIJF cables supplied were of specific standard, quality-wise as per the terms and conditions of the purchase orders, is a question of fact dependent on production of expert evidence by the parties. Such a question cannot in any event be gone into in summary proceedings in this winding up petition. This Court will not investigate into the facts and evidence in depth, as such this petition merits rejection.
38. Suffice it to say in this behalf that keeping in view the defence of the respondent regarding defective goods supplied found by the end user, ie., purchaser from the respondent, and also keeping in view terms and conditions of the purchase orders as extracted hereinabove, it cannot be said that there does not exist any dispute. In fact this justifies the withholding of payment by the respondent.
39. Regarding commercial solvency as well as worth of the respondent-company, facts detailed in paragraph 8 of the preliminary submissions in its reply though have been denied in the rejoinder filed by the petitioner. Still the fact remains, that Annexures R-3 and R-4, being the Annual reports of the respondent-company, how those are not correct, there is nothing on the file. Annexure R-3 is agenda of the 14th Annual General Meeting scheduled on 31 -12-2001; whereas, Annexure R-4 is agenda of the 15th Annual General Meeting scheduled on 28-9-2002, and Annexure R-5 is unaudited financial results (provisional) for the quarter ended on 30-9-2002. On what basis denial is being made, there is nothing in the rejoinder. Plea to the contrary urged by Mr. Kanwar has no merit and is accordingly rejected.
40. Supreme Court in Pradeshiya Industrial & Investment Corpn. of Uttar Pradesh v. North India Petro Chemical Ltd. JT 1994 (1) SC 579, considered the expression “unable to pay its dues” of Section 433 (e) of the Companies Act, 1956, and held that it is taken in the commercial sense and appellant in this case being profit-making organization having sound financial position, machinery for winding up, was held not to be utilized merely as means of realizing debt. The appellant before Supreme Court having agreed to subscribe by way of equity participation and a sum of Rs. 72.50 lakhs being due on that account, it was held by the Supreme Court that the respondent was not a creditor and the appellant a debtor. In this background, what was held and is relevant for the purpose of present case is extracted hereinbelow :–
31. While dealing with the scope of Section 433(e) this Court had occasion to hold the following: (at page 131 in Madhusudan Gordhandas and Co. (supra): (the case relied on by learned Solicitor General):–
Two rules are well-settled. First, if the bona fide dispute and the defence is a substantial one, the Court will not wind up the company. The Court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (See In re London and Paris Banking Corporation 1874 L.R. 19 Eq. 444). Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been done properly was not allowed. (See In re, Brighton Club and Norfold Hotel Co. Ltd. 1865 35 Beav. 204).
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 [l894] 94 S.J. 369; [1894] 2 Ch. 349 (Ch.D.)]. 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] 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 the substance, secondly, the defence is likely to succeed in point of law, and, thirdly, the company adduces prima facie proof the facts on which the defence depends.
Another rule which the Court follows is that if there is opposition to the making of the winding-up order by the creditors the Court will consider their wishes and may decline to make the winding-up order. Under Section 557 of the Companies Act, 1956, in all matters relating to the winding-up of the company the Court may ascertain the wishes of the creditors. The wishes of the shareholders are also considered, though, perhaps, the Court may attach greater weight to the views of the creditors. The law on this point is stated in Palmer’s Company Law, 21st Edition, page 742, as follows :
This right to a winding-up order is, however, qualified by another rule, viz., that the Court will regard the wishes of the majority in value of the creditors, and if, for some good reason, they object to a winding up order, the Court in its discretion may refuse the order.
The wishes of the creditors will however be tested by the Court on the grounds as to whether the case of the persons opposing the winding-up is reasonable; secondly, whether there are matters which should be inquired into and investigated if a winding-up order is made. It is also well-settled that a winding-up order will not be made on a creditor’s petition if it would not benefit him or the company’s creditors generally. The grounds bearing on the reasonableness of the case. [See In re P.&J. Macrae Ltd. [1961] 1 All E.R. 302; 31 Comp. Cas. 424 (C.A.)].
32. It is beyond dispute that the machinery for winding up will not be allowed to be utilized merely as a means for realizing its debts due from a company. In Amalgamated Commercial Traders (P.)Ltd v. Krishnaswami (A.C.K.) [1965] 35 Comp. Cas. 456 (SC), this Court quoted with approval the following passage from the Buckley on the Companies Acts, (13th Edn., P. 451):
It is well-settled that winding-up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding-up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the Court’.” (p. 456)
41. In Madhusudan Gordhandas & Co. v. Madhu Woolen Industries (P.) Ltd. AIR 1971 SC 2600, amongst other things it was observed that principles on which the Court acts in proceedings under Section 433(e) of the Act, are first that the defence of the company is in good faith and one of the substance, secondly, the defence is likely to succeed in point of law, and thirdly the company adduces prima facie proof on the facts on which the defence depends.
42. In Tata Iron & Steel Co. v. Micro Forge (India) Ltd.[2001] 104 Comp. Cas. 533 : [2000] 27 SCL 419 (Guj.) amongst other things it was observed that in a case of disputed debt or a disputed question of fact, the Company Court would stay its hands and it would be for the parties to get the dispute adjudicated in a competent Civil Court as it would require leading of evidence, documentary as well as oral and its appreciation, which is the domain of the original Civil Court. A bona fide dispute over a debt is a question depending upon the factual scenario of a given case. Where there is a bona fide dispute, company cannot be said to have neglected to pay on a statutory demand. Thus, the Division Bench allowed the appeal and quashed the order of company judge on winding up petition and the resultant directions being not warranted and justified.
43. In Praneet Enviroquips (P.) Ltd. v. Vishal Papertech (India) Ltd. [1999] 4 Comp. LJ 280 (Punj. & Har.), after examining the defence of the respondent as in the present case, it was held that there is a bona fide dispute whether the amount can be claimed or not. It was held that it cannot be termed that the defence is liable to be rejected outright. The winding up proceedings are discretionary in nature and it cannot be claimed as a matter of right. Admittedly, the respondent-company was a running concern and it cannot be termed, therefore, it is not in a position to pay its debt. Taking stock of the totality of the facts, therefore, it must be held that the petition for winding up cannot be taken up and is liable to be dismissed. This position is akin both on law and facts so far the present Company Petition No. 7 of 2002 is concerned.
44. At the risk of repetition it may also be observed that consequent upon the order of winding up its managerial functions and decision-making authority is shifted and ordinarily entrusted to an Official Liquidator or an Administrator. Therefore, it cannot be said that the order of admitting the petition is in the public interest. Because in many cases from the business point of view, from the marketable point of view itself it can be disastrous.
45. And as already noted above, where the dispute is an abuse of process of law, hence such a petition is liable to be dismissed. In this case when the petitioner–Haryana Telecom Limited knows that there is substantial dispute intra parties, no monetary loss or special damages needs to be established by the respondent. In fact the purpose of this petition appears to be aimed and calculated to injure the reputation of the respondent for whom winding up is being asked for.
46. Now coming to the question as to what is effect of not replying to the notice under Section 433 of Companies Act, 1956, issued by the petitioner to the respondent-company. Suffice it to say in this behalf that if the submission urged on behalf of the petitioner is accepted as a proposition of universal application and is further taken to its logical end, result will be complete disaster, and there will be utter chaos in the corporate world.
47. While examining the effect of non-issuance of reply to the notice, in WimcoLtd. v. Sindvink Proper ties (P.) Ltd. [ 1996] 86 Comp. Cas. 610 (Delhi) and also dismissing the petition it was observed as under :–
…The mere omission of the respondent to comply with the statutory notice and in not sending any replies to the communications already given by the petitioner-company to the respondent-company would not mean that the respondent has admitted the liability. The question which has to be decided in order to bring about the enforcement of the deeming provisions of Section 434 of the Companies Act is whether there exists any debt or not which the respondent-company is liable to pay to the petitioner. In case there is a bona fide dispute about that debt, the question of applying the deeming provision would not arise because unless and until the Court has, prima facie, come to the conclusion that there exists a debt which the respondent is liable to pay to the petitioner the statutory presumption that the company has neglected to pay on receipt of the statutory notice would not come into force. In the present case, it is quite evident that there is a bona fide dispute raised with regard to the liability of the respondent-company. (p. 613)
48. Reliance placed on behalf of the petitioner to Max India Ltd. v. Unicoat Tapes (P.) Ltd. [1998] 94 Comp. Cas. 405 (Punj. & Har.), does not advance its case. Reason being that any debt on the basis of unpaid price of the goods supplied and in this case when defence of the respondent was that goods were defective, was held not bona fide, therefore, the petition was admitted. For the view that has been taken in this matter, this decision is wholly inapplicable to the present case.
49. So far petitioner is concerned, it is not remediless. Reason being that it can always have the recourse of recovery for its outstanding amount, if any and in such a situation, the Court after taking note of evidence both oral and documentary, as may be produced by the parties, and then on its appreciation would adjudicate the controversy between the parties. What is the effect of the terms and conditions will also be given into. Whether in a regular suit or during the course of arbitral proceedings, as the case may be. Therefore, in the circumstances of this case and also in the face of the view that has been taken, it can neither be said that the dispute between the parties is not bona fide nor it can be said that the respondent is unable to pay its debts and/or it is just and equitable that it may be ordered to be wound up. As a result of it, presumption under Section 434( 1) of the Companies Act, 1956 pressed into service on behalf of the petitioner, also cannot be raised.
50. On behalf of the respondent, plea was also raised to the effect that the petition is neither filed by a duly authorized person nor properly verified, as envisaged under the Companies (Court) Rules, 1959 therefore, it is liable to be dismissed. This defect is curable, and, therefore, on this ground this petition cannot be rejected.
51. So far plea based on Section 8 of the Arbitration and Conciliation Act, 1996 and for referring the dispute to Arbitrator is concerned, this question is also not being gone into in these proceedings. Reason being that so far jurisdiction under Sections 433 and 434 of the Act is concerned, the question that needs to be determined by the Court is as to whether the circumstances of the case justify the admission, advertisement of the petition and then ordering winding upon or not and nothing beyond that. Therefore, in case any of the parties want to have recourse to the arbitration clause, as per the terms and conditions of the purchase orders, it is free to take such recourse as is permissible under law. This Court has not gone into this question which is left open.
52. No other point is urged.
53. In view of the aforesaid discussion there is no merit in this petition, which is accordingly dismissed. All pending applications are also disposed of. The amount deposited by the respondent in terms of the order dated 27-3-2003 is ordered to be refunded to it forthwith by the Registry with up to date interest. So far sum of Rs. 25 lakhs paid on 9-1-2003 is concerned, parties will be free to adjust/settle the same, as may be permissible in law in proceedings either before the Court of law or during the course of arbitral proceedings, as the case may be.