IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 4-9-2008 CORAM THE HONOURABLE MR.JUSTICE M.CHOCKALINGAM AND THE HONOURABLEMR.JUSTICE M.VENUGOPAL O.S.A.No.319 of 2003 M/s.Rediffusion Dentsu, Young and Rubicam Private Ltd., (Previously known as Rediffusion Advertising Private Ltd.,) Rep. By its Manager (Accounts) .. Appellant vs M/s.Solidaire India Ltd., Rep. By its Managing Director .. Respondent Original side appeal preferred under Order XXXVI Rule 1 of O.S. Rules read with Clause 15 of Letters Patent against the order of this Court dated 13.9.2002 in C.P.No.25 of 1997. For Appellant : Mr.T.R.Rajagopalan Senior Advocate for M/s.Aiyar & Dolia For Respondent : Mr.T.K.Seshadri Senior Advocate for Mr.T.K.Bhaskar JUDGMENT
Challenge is made to an order of dismissal of C.P.No.25/97 filed by the appellant herein seeking a relief of winding up of the respondent company.
2.The case of the appellant/petitioner is as follows:
The respondent company appointed the appellant as its exclusive advertising agent by letter dated 11.4.1994. Pursuant to the same, the appellant provided advertising services to the respondent. For the services rendered between October 1994 and July 1995, a sum of Rs.74,79,213.81 as on 31.3.1996 was due and payable by the respondent along with interest from 1.4.1996 as per the bills raised by the appellant. When the appellant approached the respondent, they expressed their inability to make payments. As the respondent failed to honour the bills of exchange, the appellant’s bank refused to discount further bills of exchange accepted by the respondent. The respondent admitted part of its liability to the extent of Rs.60,58,282.95 by letter dated 27.11.1995. The appellant has filed a civil suit in C.S.No.334 of 1996 on the file of this Court for recovery of the amount due to them. Though the respondent filed a written statement, there is no valid defence to the suit claim. The appellant caused a statutory notice to the respondent on 21.12.1996. In the reply dated 10.1.1997, the respondent denied its liability. The respondent company is in an adverse financial position as evidenced by its annual accounts. The respondent had stopped its manufacturing activities and has become commercially insolvent, and hence it was to be wound up.
3.The respondent resisted the petition by filing a counter stating that there is no debt due and payable to the appellant/petitioner within the meaning of the debt under the provisions of the Companies Act; that even according to the appellant, the respondent is only an agent of the principal and the respondent cannot be sued in view of Section 230 of the Contract Act; that since a suit has already been filed by the appellant, it is a matter to be decided in that suit; that there is a bonafide dispute in relation to the claim made by the appellant; that in order to promote the sale of the products, the appellant was appointed as an advertising agent; that the appellant was appointed so for Grundig Products; that the respondent was not the beneficiary as alleged by the appellant; that M/s.Grundig Electronics India Private Limited were the beneficiaries for the services rendered by the appellant; that the appellant has to work out its remedies in the suit filed by them, and hence the petition was to be dismissed.
4.On enquiry the learned Single Judge has dismissed the petition since no grounds are made out to pass an order of winding up of the respondent company. Hence this appeal at the instance of the petitioner.
5.The only question that would arise for consideration in this appeal is whether an order of winding up of the respondent company has to be made on the grounds urged by the petitioner.
6.Advancing arguments on behalf of the appellant, the learned Senior Counsel would submit that the respondent company by a letter dated 27.11.1995 has admitted its liability to the tune of Rs.60,58,282.95 wherein it is also mentioned “confirmation of liability as on 31.10.1995”; that the said letter was never disputed by the respondent; that in the light of the said document, there was no need to presume that there was a bonafide dispute as to the liability of the respondent; that the transaction was not covered by Section 230 of the Indian Contract Act, and hence the finding of the learned Single Judge that the respondent was not liable was not correct; that it is true that C.S.No.334/96 was pending; but, it did not mean that there was a bonafide dispute as to the claim; that so long as a suit was pending, it cannot be stated that the respondent was not liable to pay; that from the admission, it has got to be necessarily presumed and it would be clear also that the respondent was unable to pay the debt; that in the written statement filed by the respondent as the third defendant in CS 334/96 in paragraph 6, they have categorically admitted that the third defendant appointed the appellant as advertising agent for Grundig Products; that the same was also borne by the fact that on 11.4.1994, the respondent issued a letter appointing the appellant as exclusive advertising agent; that in paragraph 10, the respondent has admitted that after 10.5.1995, the respondent and Grundig Electronics India (P) Ltd., instructed the appellant to raise bills on the respondent only; and that when the transaction was admitted, there was no question of dispute, much less bonafide dispute that would arise.
7.Added further the learned Senior Counsel that it is pertinent to point out that the respondent has categorically admitted in its letter dated 27.11.1995 the amount due on the date also; that in view of such admission, there was no need for the appellant to get a decree in CS 334/96; that the appellant could well approach the Company Court to plead and establish that the respondent was unable to pay its debts; that all the bills of exchange have been accepted by the respondent only and the respondent has failed to honour them on due dates; that even in the written statement filed by the respondent in CS 334/96, the respondent has not disputed or raised any objection as to the acceptance of the bills of exchange; that the respondent company even otherwise has been recommended to be wound up by BIFR and AAIFR; that the subject matter of the recommendations of the authorities was pending before the Delhi High Court in C.W.No.3314/2002; that it is pertinent to point out that the first and second defendants in CS 334/96 have denied their liability and the privity of contract with the appellant; that the second defendant has submitted that it has paid in full to the appellant for the services rendered by it and therefore the onus is shifted on the respondent to prove that it was not liable to pay any amount to the appellant; and that the respondent with a view to create a dispute has denied the liability which is not bonafide.
8.Added further the learned Senior Counsel that merely because Grundig International Marketing and Sales GMBH and Grundig Electronics India (P) Ltd., have been impladed as defendants 1 and 2 and relief has been sought for against all the defendants jointly and severally, it cannot be stated that there was a bonafide dispute as to who has to pay the amount to the appellant and therefore the petition for winding up filed under Sections 433(e) and (f) and 433 read with 439 of Indian Companies Act, was not maintainable; that the defence put forth by the respondent is that the letter dated 27.11.1995 was addressed only to the Chartered Accountant of the appellant and could not be construed as an admission of liability of the respondent to the appellant; that the rejection of the appellant’s petition seeking winding up was only on the basis of the surmises and presumptions; that the learned Single Judge has dismissed the petition for winding up merely because a civil suit in CS 334/96 was filed for recovery of the amounts and was pending on the file of this Court against the respondent and two others; that the civil suit filed was only for the purpose of limitation; that it is pertinent to point out that the defence taken in the counter of the respondent that no amount was due and payable to the appellant was purely an afterthought; that the respondent cannot wriggle out of its obligation to pay the due amounts to the appellant when the same was admitted; that the respondent has not disputed the amount anywhere; but, he has only taken the plea that it is not liable to pay the said amount; that the letter dated 27.11.1995 is not at all disputed by the respondent; that so long as the said letter is not disputed even assuming that there was a civil suit filed and pending, the said admission was sufficient to establish that the respondent was unable to pay its debts and this is a good ground for ordering winding up of the respondent company; and that under the circumstances, the discretionary power should have been exercised in favour of the appellant by ordering winding up of the company. For these reasons, the learned Senior Counsel would submit that the order of the learned Single Judge has got to be set aside and the winding up has got to be ordered.
9.The Court heard the learned Senior Counsel for the respondent on the above contentions. According to him, it is not an admission, and the letter was addressed to the auditor and not to the appellant, and even at the earliest, it was made clear that the respondent was only the agent of the first defendant, and it would be quite clear that he was acting only as an agent under Sec.234 of the Contract Act, and the agent is acting on behalf of the principal and hence the principal is liable to pay. The learned Senior Counsel would further add that a civil suit in CS 334/96 has been filed which would cover the very same subject matter; that issues have actually been framed; that merely because the defendants 1 and 2 have filed written statement that they were not liable to pay, it cannot be stated that the third defendant alone is liable; that he has filed the written statement denying the entire liability; that under the circumstances, the matter has got to be tried; that untill it is adjudicated, the contention put forth by the appellant that the respondent is liable to pay cannot be accepted, and therefore the order of the learned Single Judge has got to be sustained.
10.As could be seen above, the appellant who sought an order of winding up of the respondent company has filed the said petition alleging that by a letter dated 11.4.1994 the respondent appointed the appellant as the exclusive advertising agent pursuant to which the appellant provided the advertising services to the satisfaction of the respondent; that towards the services rendered between October 1994 and July 1995, a sum of Rs.74,79,213.81 as on 31.3.1996 was due and payable along with interest also; that the respondent by letter dated 27.11.1995, admitted part of its liability to the extent of Rs.60,58,282.95; that despite the statutory notice as contemplated under the Companies Act, the admitted amounts were not paid; that the respondent company has become commercially insolvent since it is unable to pay the debt and hence the company has got to be wound up. The petition was resisted by the respondent inter alia stating that the respondent was acting only as an agent for Grndig International Marketing and Sales GmbH, Germany, and neither the appellant is a creditor nor there was any debt due and payable within the meaning of debt under the provisions of the Act; that the respondent was only acting as an agent of the principal; that the appellant has filed a civil suit in CS 334/96 against the three defendants namely the principal, shown as first defendant, and the respondent herein shown as third defendant, and another; that the respondent has filed a written statement categorically denying the liability; that issues have also been framed; that under such circumstances, there was a bonafide dispute which has got to be adjudicated by the civil Court and hence the petition was to be dismissed.
11.Concededly the respondent company appointed the petitioner as its advertising agent on 11.4.1994. A reading of the said letter would clearly indicate that the appellant was appointed as advertising agent for the Grundig products. From the letter it could also be seen that payments have got to be made within 60 days from the raising of the bills by the appellant. The entire case of the appellant seeking winding up of the respondent company rested on a letter dated 27.11.1995. According to the appellant’s side, there was a candid admission of the liability of the respondent to the extent of Rs.60,58,282.95, and despite the receipt of the statutory notice, the respondent has failed to make payment and therefore it has to be presumed that it was unable to make the payment. Attractive though the argument advanced at the first instance, the existing circumstances attendant would clearly indicate that these contentions put forth by the appellant do not stand the scrutiny of law. Admittedly, the appellant has already filed a civil suit in CS 334/96 before the original side of this Court. A perusal of the plaint in CS 334/96 would make it evident that the petitioner has sought for a money decree for a sum of Rs.77,00,516.56 against all the defendants jointly and severally. It is pertinent to point out that Grundig International Marketing and Sales GmbH, Germany, is shown as the first defendant; Grundig Electronics India Private Limited, Madras, is shown as the second defendant and the respondent herein is shown as the third defendant. It would be more apt and appropriate to reproduce the following paragraphs in the plaint in CS 334/96:
“18.Initially the first defendant-Company had not opened any Branch Office or subsidiary company at Madras. The third defendant Company had an agreement with the first defendant company. The third defendant Company was acting as the agent of the first defendant Company in its own name and was also acting on its own behalf. After that, the first defendant incorporated the second defendant company as its subsidiary and the second defendant started acting on behalf of the first defendant at Madras and India and also acted on its own behalf. On instructions from the defendants, the plaintiff raised all the bills on the third defendant Company. Though as per the bills, the payments of the bills must be made within one month, such payments were not made by the defendants. The plaintiff also drew bills of exchange on the third defendant who accepted the same. However, when the said bills of exchange were presented to the third defendant by the Bank of Maharashtra (bankers of the plaintiff), the third defendant dishonoured the same. The third defendant wrote a letter dated 2.2.1995 to the Bank of Maharashtra stating that the bills of exchange drawn by the plaintiff and accepted by them (third defendant) for Rs.21,10,080/- will be honoured on various due dates. Though this first lot of Bills of Exchange for Rs.21,10,080/- were honoured, the third defendant failed to honour the subsequent Bills of Exchange for about Rs.15,43,550/-.
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25.On 27.11.1995, the third defendant wrote to the Chartered Accountants of the plaintiff admitting their liability stating that as per their books, a sum of Rs.60.58 Lakhs was due by them to the plaintiff. Having clearly admitted their liability the defendants are liable to the plaintiff.
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30.The plaintiff submits that from the beginning the personnel of the first defendant-Company were involved with the plaintiff. The advertisement compaigns, the budgets and the plans etc., were always discussed with the representatives of the first defendant-Company. The plaintiff is giving below a sequence of meetings where the personnel from the first defendant-Company were directly involved…..”
12.A reading of the entire plaint and in particular the above said paragraphs, would clearly indicate that the appellant has sought for a money decree jointly and severally against all the defendants with the specific averments that the third defendant represented the plaintiff in April 1994 that it was the agent of the first defendant company, and the third defendant was acting not only on its behalf, but also on behalf of the first defendant. It was even averred that the third defendant company had an agreement with the first defendant company. It is also specifically stated that pursuant to the instructions from the defendants, the plaintiff raised all the bills on the third defendant company. Even from the plaint averments, it would be quite clear that the letter much relied on by the appellant dated 27.11.1995, was one written by the third defendant to the Chartered Accountant of the appellant/plaintiff and not to the plaintiff. It is not disputed that under the said letter, the third defendant has admitted the liability of Rs.60.58 lakhs. The contention of the appellant was that it was an admission of the liability of the third defendant. Contrarily, it is contended by the respondent that the letter speaks of the liability to the extent of Rs.60.58 lakhs, but it was not the liability of the third defendant. The specific averments in the plaint in CS 334/96, when noticed it would reveal that the advertisement compaigns, the budgets and the plans etc., were always discussed with the representatives of the first defendant company. The plaint also speaks of the sequence of meetings where the personnel from the first defendant company were directly involved. The appellant seeking for a decree against all the defendants jointly and severally came with the specific averments that the first defendant was the principal and the second and third defendants were acting not only as agents of the first defendant, but also on their own behalf in their independent capacity. Apart from that, even as per the plaint, the appellant has acted on the instructions of the representatives of the first and third defendants. All would go to show that the third defendant even as per the plaintiff’s case, has acted only as an agent.
13.It is true that the plaintiff has also averred that the third defendant has acted not only as agent of the first defendant, but also in its capacity. It remains to be stated that the plaintiff has sought for a money decree against all the three. Nowhere in the plaint, any specific liability of the third defendant was made. The third defendant has also filed a written statement denying its liability of the suit claim. It is pertinent to point out that on the pleadings both sides have filed the draft issues. It is also not in dispute that necessary issues have been framed in respect of the liability of the third defendant. Thus, it would clearly show that the triable issues have already been framed whether the third defendant was liable to pay or not.
14.While the plaintiff has filed the suit for money decree against all the three defendants with the specific averments that they are jointly and severally liable, and the third defendant was also acting as agent of the first defendant, the third defendant filed a written statement that it was not liable to pay any amount since it was acting only as agent and hence the principal is liable and the necessary issues have also been framed. At this juncture, it would be quite clear that the dispute raised by the respondent was actually bonafide and hence the parties have to await the adjudication of the liability of the respective sides. It is pertinent to point out that the company petition seeking winding up has been filed after the filing of the written statement by the defendants. The contention of the appellant’s side that the first and second defendants have categorically denied the liability and have further averred that the third defendant alone was liable for answering the claim cannot be countenanced when the plaintiff has filed the suit against all the three defendants seeking for a money decree against all jointly and severally. Merely because the written statement was filed by the first and second defendants, it cannot be taken that the third defendant alone was liable and till the adjudication is made by the civil forum in the suit, it would remain as a dispute. Now, no liability could be fastened on the third defendant. It is not in controversy that the respondent company has been ordered to be wound up by BIFR and AAIFR at Delhi, and that cannot be a reason for ordering winding up of the respondent company in the instant case.
15.Whenever a company petition is filed seeking winding up, the Court must consider the circumstances in every case and come to a necessary conclusion. Needless to say that granting of the relief of winding up is a discretionary relief; but, the Court when exercise this discretionary power, it must be governed by justice and equity. The Court must exercise its discretion judiciously also. It is well settled principle of law that if there is any substantial defence put forth by the respondent, the same has got to be decided by the Court only on appreciation of evidence. Having filed a suit calling the respondent, the third defendant therein, as the agent of the first defendant and necessary issues having been framed touching the liability of all the defendants, filing a company petition like this was nothing but a device to pressurize for payment of the said sum by the third defendant. It is well settled that the winding up petition cannot be made as a device to pressurize the respondent to make payment as per the demand. In view of the pendency of the suit with the above said specific averments and seeking a decree for recovery of money against all jointly and severally, which is exactly the subject matter in the company petition and the fact that pursuant to the substantial defence, necessary issues have also been framed in that suit, this Court is of the considered opinion that at no stretch of imagination, an order of winding up could be made and hence this Court is unable to see any reason to interfere in the order of the learned Single Judge.
16.In the result, this original side appeal is dismissed confirming the order of the learned Single Judge and leaving the parties to bear their costs.
(M.C.,J.) (M.V.,J.)
5-9-2008
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M.CHOCKALINGAM, J.
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M.VENUGOPAL, J.
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OSA No.319 of 2003
Dt: 5-9-2008