JUDGMENT
Mukul Mudgal, J.
1. This petition seeks the winding up of the respondent Company (hereinafter referred to as `the JTL’) by virtue of a Notice dated 25th March, 1997 under Section 434 of the Companies Act (hereinafter referred to as `the Act’) by which the petitioner (hereinafter referred to as `the TISCO’) called upon the JTL to make an outstanding payment of Rs. 8,59,41,364.78.
2. TISCO had given working capital to the JTL to the extent of Rs.9 crores and the assistance so given was to be repaid by the JTL in the form of production commission and selling commission besides payment from export orders. As per Section 125 of the Companies Act a charge of Rs. 9 crores was also registered with the Registrar of Companies (ROC), Delhi and Haryana in respect of raw material, unfinished and finished goods and store spares in the JTL units at Faridabad and Kundli in Haryana and Aurangabad and Jalna (Maharashtra). On 3rd July, 1995, TISCO requested the JTL to confirm its outstanding balance of Rs. 7,10,15,163.53 as per the detailed statement of accounts. By letter dated 6th July, 1995, JTL confirmed a sum of Rs. 7,10,01,226.00 to be due and payable by it to the TISCO.
3. Since the above amount of Rs. 7,10,01,266.00 confirmed by the letter dated 6th July, 1995 and evidenced by the registered charge for 9 crores under Section 125 of the Act was not repaid by the respondent company, a notice dated 25th March, 1997 under Section 434 of the Act was sent by the petitioner Company/TISCO to the respondent Company/JTL claiming by then a sum of Rs. 8,59,41,364.78. The statutory notice, issued under Section 434 dated 25th March, 1997 was replied to by the JTL on 17th April, 1997 and the reply stated that there were certain circumstances which delayed the payment of not only the TISCO but banks’ dues, statutory dues, and the employees’ payment and the company was confident of redeeming itself and making all due efforts to see that the dues of the TISCO were paid in one go.
4. Thereafter since payment was not received, TISCO filed the present petition under Section 433(e) of the Act on 11th December, 1998. By the Order dated 16th December, 1998, an interim order was passed injuncting the JTL from transferring, alienating or creating third party interest on the company’s assets except in normal course of its business. On 3rd December, 1999, the winding up petition was adjourned sine die on this Court being told that the JTL was before the Board of Industrial and Financial Reconstruction (BIFR). On 17th July, 2000, the BIFR. recommended the winding up of the JTL under Section 20(2) of SICA. The present petition was, therefore, revived by the Order dated 1st March, 2002.
5. The reply affidavit filed in this Court by the JTL while generally denying the claims of the TISCO contended that the debt was disputed and inter alia pleads as under:
(a) that it was the TISCO’s conduct which was responsible for creating difficulties and financial constraints for JTL;
(b) that the unilateral step of TISCO in terminating the contract has caused the present situation;
(c) that the advance given by the TISCO was to be adjusted at the rate of 8 per cent on the payment of each invoice for supplies of hand tools to be made by TISCO to the JTL;
(d) that though the agreement provided for payment at the rate of 8 per cent for value of each export transaction, recovery was made at as high a rate as 26.36% by TISCO, therefore, withdrawing the provided working capital before completion of export turnover in TISCO account affected the respondent company’s finances adversely;
(e) that in fact an amount of Rs. 50.83 lacs was due to the respondent company from the TISCO company;
(f) that the offer made by the JTL to pay Rs. 1 crore to the TISCO by 31st December, 1997 was a gesture of gratitude even though the said amount was not due and payable;
(g) that that the TISCO themselves did not respond to the letter dated 17th April, 1997 in reply to the winding up notice because the concerned officials of the TISCO did not agree to meet the company’s Director and
(h) that the letters dated 6th July, 1995, confirming the balance of Rs. 7,10,01,226.00 was obtained by the TISCO in unwarranted haste and given by PC Jhalani, the Director of the company in good faith without even verifying the accounts and only reflects the bona fide mistake and ignorance of the accounts by the said Director who was looking after the technical matters relating to production as the signatory Director of the said letter dated 6th July, 1995 was not concerned with the accounts.
6. In the rejoinder while reiterating the stand taken in the petition, TISCO has also relied upon the following letters of the respondent in addition to the acknowledgments dated 6th July, 1995 and 17th April, 1997:
(1) Letter dated 5th September, 1997, informing the TISCO that the settlement of dues to the TISCO was on a top priority in all proposals being worked out by JTL;
(2) Letter dated 7th January, 1998 to the same effect and
(3) Letter dated 23rd February, 1998 where an offer of settlement by way of payment of Rs. 5 crores against the TISCO’s claims of approximately Rs. 8.5 crores was written by the Director of the JTL.
7. The respondent’s plea is that in the 4 agreements, Ex.A, B, C & D (annexed with the petition), the working capital assistance was to be provided to the extent of Rs. 9 crores on the account of the certain obligations by which TISCO was also bound and the method and manner of repayment was by 8% adjustment on payment of each invoice for the supply of hand tools. It was inter alia provided that from 1st April, 1990 till the pendency of the agreement, the JTL guaranteed a minimum compensation of Rs. 3.75 lacs per month to the TISCO. This was later on raised to Rs. 5.75 lacs per month. It was, therefore, contended that the financial assistance was to be re-compensated by payment production commission by the respondent to the petitioner as per the agreement.
8. Thus the main dispute which arose is the liability of the company towards sale commission claimed by the petitioner and the amount of Rs. 670.50 lacs towards the sale commission is not payable by the JTL to the petitioner in terms of any of the agreement executed between the parties. The claims of TISCO was not in conformity with the agreement executed by the parties.
9. The confirmation by letter dated 6th July, 1995 was given by a person not connected with and not knowing the accounts in undue haste and this is explainable in law and reliance is placed on Shamsher Vs Rustam and Mohd. Usman Vs Shahzada Begum etc. 1988 RLR 534 for the above preposition. Since the company was negotiating a collaboration agreement with Stanley Works, USA and TISCO being a well-known name, it was necessary to settle the dispute with TISCO as Stanley would have taken such pending disputes with a company such as TISCO adversely. The letter of 17th April, 1997 was written in the above context. The letter dated 17th July, 1997 merely shows that there were disputes between the parties and the respondent company was willing to settle the dispute and does not amount to any admission of the amount due.
10. In my view, what is required to be considered is the provisions of Section 434(1)(a) of the Act under which the statutory notice was sent. The said section relating to presumption of inability to pay the debt reads as follows:
” Section 434. Company when deemed unable to pay its debts.___(1) A company shall be deemed to be unable to pay its debts___
(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and 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;”
11. It is not in dispute that a notice contemplated by Section 434 of the Act was given to the respondent on 25th March, 1997. It is also not in dispute that by a letter dated 17th April, 1997, the said claim in the winding up notice under Section 434(a) was not disputed and merely time was sought to make such payment on account of the difficult circumstances being experienced by the respondent company. Even thereafter the following documents adequately demonstrate the respondent’s acknowledgment of its liability to pay the debt:
(1) Letter dated 3rd July, 1995, acknowledging the payment of Rs. 7,10,15,163.53 crores to be due and
(2) Letter dated 6th July, 1995 which was a letter issued by Y.C. Jhalani confirming the existence of Rs. 7,10,01,266.00 to be due.
Even the letter dated 5th September, 1997, issued by the Executive Vice-Chairman, P.C. Jhalani clearly stated as follows:
"x x x x x x x x We assure you once again that the settlement of the dues to TISCO is on top priority in all the proposals being worked upon by us." Similarly there is a letter of 7th January, 1998, issued by Shri P.C. Jhalani, Executive Vice Chairman which reads as follows:
“As you may be aware, we are in negotiation with a very large company of USA for a joint venture. The initial confidentiality agreement and the MOU has already been executed with them. At present, due diligence is being carried on by a very well known consultants, namely, M/s Arthur Anderson, which is likely to be completed by the end of this month.
We hope that the arrangements with them, which are progressing very well, will be made by April/May this year. The arrangements also envisage settlement of all dues of TISCO.
We are informed by Mr. Sharad Gupta on telephone and Mr. Vinod Kumar who visited us today that you are contemplating a legal action for recovery of dues from us which reflects a very natural concern on your part due to delays in repayments by us. However, in view of the circumstances explained above, we request you to defer taking any legal action in the matter.”
12. These letters do not reflect any dispute of the debt, raised by the respondent company nor the violation of the terms of the agreement by the petitioner company, alleged by the JTL in the reply filed in response to the winding up petition. I am, therefore, clearly of the view that the disputes sought now to be raised in response to the TISCO’s claims for repayment are obvious afterthoughts pleaded in the reply and the contemporaneous correspondence and documents between the parties do not reflect the existence of a dispute or a violation of the terms of the agreement by the petitioner company. In this respect, I am not taking into account the letter dated 23rd February, 1998, cited by the petitioner which was issued by a mediator between the parties as it was private correspondence and was termed as personal and confidential.
13. The explanation given in respect of the acknowledgment given by Shri Y.C. Jhalani on 6th July, 1995 as Vice-President that it was given upon the insistence of the representative of the petitioner and to oblige him is not worthy of belief. Shri Y.C. Jhalani is a director and vice president according to the reply affidavit. It is incomprehensible that a vice president of a company would confirm a balance of more than Rs. 7 crores recklessly. The confirmation sought by the petitioner’s letter dated 3rd July, 1995 was for Rs. 7,10,15,163.33 whereas the confirmation given by the JTL through Y.C. Jhalani was for Rs. 7,10,01,226.00. The difference in the amounts of confirmation sought by the petitioner and given by the respondent itself shows that the confirmation was given after reconciliation and not hurriedly as sought to be contended in the reply.
14. The respondent has not produced any contemporaneous correspondence to corroborate that TISCO had:
(i) violated the agreement between the parties;
(ii) levied interest at 26.36% instead of 8%;
(iii) unilaterally terminated the contract;
(iv) was liable to pay Rs. 50.83 lacs to the JTL
It has also not been explained satisfactorily why Rs. 1 crore was offered to be paid by 31st December, 1997 as contended in Para 15 of the reply. If there were numerous violations of the agreement by the TISCO, such a promise to pay Rs. 1 crore as a gesture of gratitude by a company experiencing difficulties due to the averred conduct of the TISCO is wholly incongruous and incompatible with the defense now sought to be set up in the reply to the winding up petition.
15. The respondent company has relied upon Shamsher’s judgment (supra) which held that under Section 17 of the Evidence Act a party making admission has the right to rebut the same and can plead and prove the admission not to be true. Similar is the judgment of Delhi High Court in Mohd. Usman’s case (supra). In my view there are more than one admissions made by the respondent company and in any event, the JTL’s averments regarding the circumstances in which the admissions are made are not satisfactory and not capable of belief. The explanation given by the JTL does not show that the admission sought to be disowned was untrue. Accordingly, the aforesaid judgments do not come to the aid of the respondent.
16. Thus since the amount claimed in the Section 434 notice dated 25th March, 1997 was not denied in the response dated 17th April, 1997 by the JTL, it is clear that the presumption postulated in Section 434(a) of the Act about the deemed inability of the respondent Company to pay a debt due does arise and as per the above discussion the respondent has not been able to rebut such a presumption.
17. Thus I am satisfied that the respondent company is indebted to the petitioner company and is clearly unable to pay its debts as no effort or even offer to make the payment was made in this Court also. Accordingly, the respondent Company is directed to be wound up. The Official Liquidator, attached to this Court, is hereby appointed as the Provisional Liquidator of the company. The Provisional Liquidator is directed to take into possession all the assets and books of accounts etc. of the respondent company.
Let citation of the winding up order be published in Statesman (English), Veer Arjun (Hindi) and Delhi Gazette within 21days from today.
