OJA/6/2007 16/ 16 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD O.J.APPEAL No. 6 of 2007 In COMPANY PETITION No. 240 of 2004 With CIVIL APPLICATION No. 13 of 2007 In O.J.APPEAL No. 6 of 2007 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA Sd/- HONOURABLE MR.JUSTICE BANKIM.N.MEHTA Sd/- ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2 To be referred to the Reporter or not ? NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5 Whether it is to be circulated to the civil judge ? NO ========================================================= M/S. GEETA PRINTS LTD. - Appellant(s) Versus M/S. FALCON INDUSTRIES - Opponent(s) =============================================================== Appearance : MR D.D.VYAS, SENIOR ADVOCATE WITH MR DHAVAL D VYAS for Appellant(s) : 1, MR AL SHAH WITH MR VIMAL M PATEL AND MR PS PURANI for Opponent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MR.JUSTICE BANKIM.N.MEHTA Date : 19/09/2008 ORAL JUDGMENT
(Per
: HONOURABLE MR.JUSTICE D.A.MEHTA)
1 This
Appeal challenges order dated 11.12.2006 made in Company Petition No.
240 of 2004 whereby the petition filed by respondent herein(original
petitioner) has been admitted against the Appellant herein (original
respondent) and an order made for publication of advertisement.
Hereinafter, for sake of convenience, the parties shall be referred
to as per their respective description in the petition.
2 The
petitioner preferred Company Petition No. 240 of 2004 claiming that
an amount of Rs.11,04,332/, comprised of principal sum of
Rs.7,62,500/- plus interest to the tune of Rs.3,41,820/- was due and
payable by the respondent company to the petitioner. A further sum of
Rs.6,61,100/- was also claimed as being recoverable towards ‘C’ form
liabilities. The petitioner made the claim on the basis of invoices
available at page Nos. 12 to 46 of the Company Petition. According to
the petitioner, on 3.3.2004 the petitioner had confirmed the Accounts
and hence there was no question of any dispute on this count.
3 It
was further submitted on behalf of the petitioner that despite
statutory notice the respondent company had failed to make payment
within the prescribed period of 21 days, and in fact there was no
reply even to the statutory notice. Placing reliance on provisions of
Section 433 read with Section 434(1)(a) of the Companies Act, 1956
(the Act) the petitioner prayed for admission of the petition and
ultimately an order for winding up of the respondent Company.
4 On
behalf of the respondent Company the petition was disputed firstly
on the ground that the petition was not maintainable, the statutory
notice having been issued to one Geeta Prints Private Limited while
the petition was filed against Geeta Prints Limited, a Public
Company. That debts of the private company could not be claimed
against the public company. That the pubic company had thereafter
ceased to exist and hence, in absence of existence of the company
there was no question of ordering winding up of a non-existent
company. It was further submitted that the respondent Company had
raised disputes with regard to the debts prior to the point of time
the statutory notice was issued and this plea was based on
communication dated 24.5.2004. It was further submitted that the
remedy available to the petitioner would be to prefer a Civil Suit.
Further contention was to the effect that the respondent company
was in good financial position and winding up proceedings were not
the correct remedy, and even assuming that any amount was due from
the respondent company to the petitioner, the same could be recovered
by filing a Civil Suit for recovery. It was further submitted that
the petition was not in prescribed form being Form No. 46 read with
Rule 95 of the Company Court Rules in absence of relevant averments
as required by Column No.8 of the Form.
5 The
learned Company Judge vide impugned order has not accepted any of the
defences raised by the respondent company and ordered admission of
the petition and publication of advertisement for the reasons stated
in the impugned order. At the time of admission of this Appeal, the
operation of the order has been stayed.
6 Heard
learned Senior Advocate appearing for the Appellant i.e. the
respondent company. All the contentions which were raised before the
learned Company Judge have been reiterated. In support of the
submissions made, reliance has been placed on decision of this Court
in case of Tata Iron & Steel Company Ltd. Vs.
Micro Forge (India) Ltd.,2002 GLR 1594 with special
reference to the observations made in paragraph Nos. 15, 16 and 17
of the said judgment. The next judgment which was cited was
Ashok Fashions Ltd. Vs. Meghdoot Acid And Chemicals (1998) 91 Company
Cases 655 followed by case of Wimco Ltd.
Vs. Sidvink Properties (P) Ltd. (1996)86 Company Cases 610
and the last decision that was cited was in case of IN
RE M/s. Rishi Enterprises 1991 (2) GLR 1213. On the basis
of the aforesaid case law, it was contended that whether a company
should be wound up or not, had to be determined on facts and
circumstances of each case and the concept of inability to pay debts
had to be considered in context of the fact that any order of winding
up would result in economic death of the company. It was submitted
that the statutory presumption which is available under Section
434(1)(a) of the Act was a rebuttable presumption and once the
respondent company had raised various disputes, pointed out financial
soundness of the company, the Company Court ought to have come to the
conclusion that the presumption was rebutted and in exercise of
discretion vested in the Company Court ought not to have entertained
the petition. It was therefore submitted that merely because
statutory notice was not replied by the respondent company, the
petition could not be entertained without anything more. For
establishing that the company was a going concern various averments
made in Affidavit-in-Reply and Further Affidavit-in-Reply were
referred to and read extensively. It was therefore urged that the
petition was required to be allowed and impugned order dated
11.12.2006 was required to be quashed and set aside.
7 On
behalf of the original petitioner – respondent herein, it was pointed
out that the contention regarding status of the company having
undergone change was a dishonest defence considering the provisions
of Section 43A(1A) of the Act because the Registration number of the
company remained the same and only by virtue of deeming fiction the
name of the company underwent change without any change in the
personality of the company. In support of the submission, certificate
of incorporation which was annexed to the Affidavit-in-Rejoinder was
pointed out to emphasise the fact that the word ýSPrivateýý
stood deleted in light of Section 43(1A) of the Act as recorded
therein. It was further contended that no dispute as such was
raised considering the fact that the petitioner had produced not only
the acknowledgment of account but also the fact of having supplied
the goods as narrated in Affidavit-in-Rejoinder which remained
controverted. That the petitioner had supplied the goods which had
been received by the respondent company and utilised in its
manufacturing process. That in fact communication dated 24.5.2004 on
which reliance was placed by respondent did not raise any dispute as
such, but only sought reconciliation of accounts as could be seen
from the subject matter of the communication. Therefore, subsequent
averments made in Affidavit-in-Reply that no order had been placed
with the petitioner for supply of goods or that the goods had not
been supplied could not be given credence in light of admission of
the respondent company itself. In so far as applicability of
Sections 433 and 434 of the Act are concerned, it was submitted that
under section 433(e) of the Act, the Company Court was entitled to
wind up a company if the company was unable to pay debts viz. where
that fact was established. Whereas the requirement of Section
434(1)(a) of the Act was based on a deeming fiction; that a company
shall be deemed to be unable to pay its debts if the company does
not comply with the requirements stipulated in clause (a) of
sub-section(1) within the statutory period. That in such an
eventuality capability of the company to pay had no role to play and
even if a company was financially sound, if there was statutory
default envisaged by provisions of Section 434(1)(a) of the Act, the
Company Court in exercise of its discretion could always proceed
ahead in a winding up petition and there was no prohibition in law.
That in such a case winding up petition was a mode of recovery. In
support of submissions made reliance has been placed on following two
decisions :
[1] AIR
1966 SC 1707 ý Harinagar Sugar Mills Co. Ltd. Vs. M.W.Pradhan (now
G.V.Dalvi) Court Receiver.
[2] (2006)133
Company Cases 130(AP) Enernorth Industries Inc. Vs. VBC Ferro Alloys
Ltd., wherein the Apex Court decision in case of
Madhusudan Gordhandas and Co. Vs. Madhu Woolen Industries P. Ltd.
[1972] 42 Comp.Cases 125 (SC) has been extracted at page
Nos. 143 and 144 of the said reports. Inviting attention to averments
made in paragraph Nos. 13, 15 and 16 of the petition it was
submitted that even the requirement prescribed by Rules and
statutory form stood complied with. The learned Advocate therefore
submitted that no interference was warranted in the impugned order
made by the Company Court and the Appeal was required to be
dismissed. Lastly it was submitted that before the Division Bench
could take up the Appeal and Stay Application against the operation
of the impugned order, advertisement had already been published as
directed by the Company Court.
8 The
facts are not in dispute. When the petitioner issued notice calling
upon the respondent company to make payment, admittedly, the
respondent company did not reply to the statutory notice. That gave
rise to statutory presumption that respondent company was unable to
pay its debts considering the fact that not only no reply was
tendered but no arrangement was made by the respondent company to pay
the sum or secure the sum to the reasonable satisfaction of the
creditor. Albeit the presumption is a rebuttable presumption.
Hence, the record will have to be considered as to whether the said
presumption is rebutted. Thereafter, it will have to be examined
whether the discretion exercised by the learned Company Judge is in
accordance with the legal requirements.
9 But
before that one may consider the scope of section 434(1)(a) of the
Act. Under the section before a company shall be deemed to be unable
to pay its debts two conditions must be satisfied, namely, (i) the
creditor shall have delivered a demand in the prescribed manner on
the company to pay the sum due to him; and (ii) the company has for
three weeks thereafter neglected to pay the same, or to secure or
compound for it to the reasonable satisfaction of the creditor. After
the statutory notice the Company could pay the sum demanded or secure
or compound for it to the reasonable satisfaction of the creditor.
The section does not confer a right on a debtor but only gives him
an opportunity to discharge the debt in one or other of the ways
mentioned therein. The debtor could secure or compound for a debt
only where the circumstances under which the demand is made permit
such a mode of discharge. In the present case all the requirements
of the provision stand satisfied. Operation of this section has
nothing to do with ability to pay. Once the neglect to pay stands
established statutory presumption arises.
10 For
ascertainment of the fact as to whether the statutory presumption
stands rebutted or not one can take clue from clause (c) of
sub-section (1) of Section 434 of the Act, which indicates that for
determining whether a company is unable to pay its debts or not, the
Company Court shall take into account the contingent and prospective
liabilities of the company. In the facts of the present case, even
if one accepts the averments made in the Affidavit-in-Reply and the
Further Affidavit-in-Reply to be correct, there is nothing on record
to show as to what were the contingent and prospective liabilities of
the respondent company, apart from the existing liabilities.
Therefore, prima facie, it is not possible to accept the submission
on behalf of the respondent company that the company is in a sound
financial position and is in a position to discharge its existing
liabilities. Merely from the figures of turnover, various expenses
incurred by the company, the amount of Income tax refund received by
the company, it is not possible to ascertain the financial health of
the company in absence of any corroborative evidence in this regard.
The submission that the same is not disputed cannot be considered
for the simple reason that the financial soundness of the company
has to be considered by the Court while exercising discretion and
when the company makes a positive averment it is the respondent
company who has to establish such averment. Factually also, paragraph
No.11 of the Affidavit-in-Rejoinder categorically calls upon the
respondent company to prove the averments made in paragraph Nos. 5
to 9 of the Affidavit-in-Reply originally filed, despite which except
the further Affidavit no evidence has come on record.
11 The
factum of so called dispute as pleaded by the respondent company also
does not merit acceptance because as can be seen from communication
dated 24.5.2004, the subject matter pertained to reconciliation of
accounts and the first sentence of the said communication is in
relation to various invoices issued by the petitioner. The said
letter further goes on to state that the rates stated in the invoices
are exaggerated and not commensurate with the items and the quality
of the items. Thereafter, the respondent company informs upon the
petitioner that the respondent shall do the needful upon final
verification of the contents of the invoices and consider the same
for payment. There is not a single sentence in the said communication
to the effect that no orders were placed with the petitioner or that
no goods were received by the respondent company from the petitioner.
Therefore, the averments made in Affidavit-in-Reply to the said
effect are not borne out by records and do not inspire confidence and
cannot be taken at face value. This is more so in light of the fact
that no such defence was raised in response to the statutory notice.
12 The
contention regarding non compliance with statutory rules and the
prescribed form also does not merit acceptance considering what is
stated in the petition. Similarly the change in status of the company
would not make any material difference and the finding of the Company
Court on this count does not warrant any interference.
13 In
light of the various principles enunciated by the decisions cited by
both the sides, it becomes apparent that the present is not a case
where prima facie one can say that a frivolous petition has been
presented and entertained. In fact, on facts the impugned order made
by the Company Court is in consonance with requirements of law and
does not require to be interfered with.
14 In
the result, the Appeal is dismissed. Interim relief granted in Civil
Application No.13 of 2007 vide order dated 17.1.2007 shall stand
vacated. The Company Court shall proceed with hearing of the Company
Petition from the stage at which the impugned order was under
challenge.
15 At
this stage, learned Counsel for respondent company prays for
extension of interim relief. In light of the facts which have come
on record the request is rejected.
O.J.
Civil Application No. 13 of 2007.
In
light of the order made today in main Appeal this Civil Application
is rejected. Rule discharged.
Sd/- Sd/-
(D.A.Mehta,
J.) (B.N. Mehta, J.)
M.M.BHATT