ANAND STEEL v. BHARATH EARTH MOVERS LTD. — 1987 DIGILAW 155 (KAR)

CHANDRAKANTHARAJ, J, J. ( 1 ) THIS Company petition under Section 433 (e) of the Companies Act, 1956, is by M/s. Anand Steels, Bangrlore. It is a proprietory concern, that has moved this Court for a winding up order seeking the winding up of the respondent-Bharat earth Movers Ltd. , Bangalore. ( 2 ) THE substance of the allegations in the petition is that on various dates commencing from 9/16-10 1985 to 1-12-1985 certain supplies of steel were effected in respect of which a sum of rs. 13,67,697/- was due and liable to be paid by the respondent-company. The same was not paid despite more than one notice issued. Petitioner was informed that goods worth about rs. 45,405/- was rejected by the respondent company. Therefore, the petitioner is seeking payment of Rs. 13,22,292/- together with interest at 18% per annum from 1-7-1986, upto the date of petition. It is in that circumstance, for non-payment of the cost of materials supplied the petition is filed, inter alia, contending that the respondent-company is unable to pay its debts and therefore it should be wound up. ( 3 ) PETITION is resisted by the respondent-company. Detailed statement of objections has been filed. It is unnecessary to refer to the objections in detail. In paragraph-5, it is pointed out that the Chairman of the respondent- company received a complaint from 108 employees alleging that certain employees were indulging in serious irregularities in the Stores Department. One employee of the Stores Department is specifically named to be in collusion with the suppliers in manipulating entries in the records of the Stores and Receiving departments. It is pleaded that certain consignments which were actually paid for were not received at all. Payments were made on the basis of the forged records. In that circumstance, in para-21 of the statement of objections, the Company has asserted as follows : -"it has sufficient assets to carry on its business. It is a profit making company as could be seen from its balance sheet. Respondent has not paid the amounts claimed by petitioner in the circumstances stated above and in view of the fraud committed by petitioner. "that assertion relates to and is based on the circumstances narrated in the objection statement that certain employees have been suspended and enquiry ordered against them. Respondent has not paid the amounts claimed by petitioner in the circumstances stated above and in view of the fraud committed by petitioner. "that assertion relates to and is based on the circumstances narrated in the objection statement that certain employees have been suspended and enquiry ordered against them. Respondent company asserts that it has lodged a police complaint in regard to the complicity of its employees in falsifying the entries in the records. ( 4 ) IT is on such pleadings, this court even before directing advertise- ment in the paper, called upon the parties to adduce evidence. ( 5 ) ON 31-10-1986 this Court passed an order as follows : -"for enquiry regarding the alleged liability of the respondent company and to determine whether it is a fit case for winding-up the company, call on 20-11-1986. "thereafter, P. W. 1 for the petitioner was examined and his evidence was concluded on 4-12-1986, subject to rebuttal evidence, if any. The evidence of respondent-company was concluded by examination of two witnesses when question of permitting the petitioner to lead rebuttal evidence on the basis of certain documents came up for consideration. At that point of time, the Court suggested to the respondent-company to state categorically when their investigation into the alleged complicity of its employees in committing fraud in collusion with the petitioner would be completed so that the Court may proceed with the case thereafter. On 13th March 1987 the matter has been adjourned to 16th April 1987, the last working day before the Summer Vacation. On that day, the Company Judge did not sit, therefore, the matter was called on 28-5-1987. As recorded in the order sheet on 28-5-1987 a memo was filed by the respondent company admitting the liability of Rs. 10,33,620-30, but disputing the liability to pay interest and value of three consignments, which it was contended had not been delivered. A cheque for the admitted liability was also paid to the counsel for the petitioner. The Court wanted to close the matter reserving liberty to the petitioner to collect the disputed amount by action in the Civil Court. ( 6 ) THE counsel for the petitioner contended that it would not be the correct position in law. A cheque for the admitted liability was also paid to the counsel for the petitioner. The Court wanted to close the matter reserving liberty to the petitioner to collect the disputed amount by action in the Civil Court. ( 6 ) THE counsel for the petitioner contended that it would not be the correct position in law. The petitioner was entitled to a winding up order even in respect of the amount disputed as there was no tenable defence disclosed either in the evidence adduced by the respondent or in the pleadings. Therefore, the matter was heard at length today on the above questions. ( 7 ) FIRSTLY, reliance was placed on the decision of the Supreme Court in h. S. Mills Company v. Court Receiver. High Court of Bombay (A. I. R. 1966, S. C. 1707) in which while observing whether it could not be said that the petition filed by the Receiver for winding up of the Company is not a mode of realisation of the debt due to the joint family from the Company, the Court relied upon a passage in Palmer's Company Precedents, part II, 1960 Edition at page 25, to the following effect :"a winding up petition is a per- factly proper remedy for enforcing payment of a just debt. It is the mode of execution which the Court gives to a creditor against a company unable to pay its debts. "therefore it was contended on the strength of the observation of the Supreme court that the Court must necessarily pass a winding up order when a debt is established and a petition under Section 433 (e) of the Companies Act is a proper remedy to enforce payment of that debt. One cannot dispute that as a proposition of law. What the learned counsel for the petitioner has missed is the Court must te satisfied that it is a just debt. A disputed debt or a debt created by the commission of fraud (though not yet established) cannot be equated with the just debt due repayment of which the court would enforce as a matter of course. What the learned counsel for the petitioner has missed is the Court must te satisfied that it is a just debt. A disputed debt or a debt created by the commission of fraud (though not yet established) cannot be equated with the just debt due repayment of which the court would enforce as a matter of course. Therefore, the decisions relied upon cannot be said to assist the petitioner on the facts of this case ( 8 ) SIMILARLY, attention was drawn to the decisions reported in 1969 (2), company Law Journal, Pages 71 and 155, in which a learned Judge of the Bombay high Court has more or less reiterated that a petition for winding up is a remedy available to enforce payment of a debt. Again, it pre-supposes that the debt exists ; if the existence of the debt is in doubt, then it necessarily follows that the winding up petition is not a remedy to enforce a debt which is in doubt. The learned counsel for the respondent, therefore, contended that in the case of a disputed debt the Court must be satisfied in regard to the genuineness and bonafide nature of the dispute as held by the supreme Court in M/s. Gordhandas and Co. v. Machu Woolen Industries Private Ltd , ( AIR 1971 SC 2600 ). ( 9 ) IN the said decision, the Supreme court after noticing its certain earlier decisions in paragraph-21, which is reproduced below, has explained the position clearly. "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 Re. A. Company 94 SJ 369 ). "here 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 Re. Tweeds garages Ltd. , 1962 Ch. 406 ). The principles on which the Court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends. " (emphasis supplied ). 406 ). The principles on which the Court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends. " (emphasis supplied ). The Court must form an opinion that the defence taken by the Company is in good faith and is one of substance and that defence is likely to succeed in point of law and the company adduces prima facie evidence in proof of the facts on which the defence depends. ( 10 ) THE learned counsel for the petitioner also drew my attention to a passage in the book "the New Frontiers of Company Law" by S. C. Sen (1971 edition page 249) under the Caption 'bonafide disputed debt '. The learned author has stated thus : it is not only competent for, but is the duty of the court to go into the question of genuineness or otherwise of the dispute raised by the company and to see whether the 'dispute is on the face of it genuine or merely a cloak on the company's real inability to pay its debts. ' Per Beaman, J. , in Tulshidas v. Bharat Khand Cotton Mills. " the respondent-company is a government Company. Its turnover goes into crores of rupees as it manufactures heavy earth moving equipments. Now properly understood Justice Beaman's - observations covers only cases where a defence is putforward not in regard to the liability but as a screen or a cover to hide the inability of the company to pay its debts. Now, to say that a Government company is not able to pay a debt of Rs. 3 lakhs and therefore has raised this dispute would be making travesty of truth. Therefore, that passage is also not of much assistance to the petitioner. ( 11 ) THE learned counsel for the petitioner drew the attention of the court to the scanty evidence, which the respondent-company has placed before the Court which does not establish nondelivery of goods. On the otherhand, the documents marked clearly establish that delivery has taken place. This Court should not look at the evidence from the point of view of conclusive proof of the transactions. On the otherhand, the documents marked clearly establish that delivery has taken place. This Court should not look at the evidence from the point of view of conclusive proof of the transactions. What this Court should examine is whether the evidence adduced in any way supports the assertion of the respondent-company in its objection that it has a tenable defence to dispute delivery. R. W. 1 an employee in the stores Department, despite innumerable contradictions in his testimony, has stated (which was not challenged in the cross-examination) that one employee in the Department has been kept under suspension and domestic enquiry has been commenced against him in regard to his complicity in manipulation of the records in the Stores Department and receiving Department. As earlier noticed, the specific averment in para 21 of the statement of objections is that the petitioner in collusion with the employees has manipulated the documents and obtained payments for delivery which have not been effected. Therefore, the company Court trying the case in summary procedure is not the proper Court to determine delivery or non delivery that is now complained of by the respondent and the petitioner. If the case of the respondent-company is one of collusive fraud committed by the petitioner, that can be established only in a properly framed suit filed by the petitioner or in a criminal case launched by the State on the complaint of the respondent-company. That a complaint has been made to the police is not in dispute and that ultimately the complaint may result in a prosecution need not now be debated. If it does not within a reasonable time result in prosecution, the petitioner's case for having effected delivery becomes that much stronger. ( 12 ) ONCE the respondent company has paid a large sum of Rs. 10 lakhs and disputes to pay the interest claimed and the price of the alleged undelivered goods, this Court should not proceed to determine the question of delivery or non-delivery, for the reasons already stated that, that should be done only in a civil Court, where proper evidence may be led after proper issues are raised on the specific pleadings. Collateral pleadings in defence of winding up petition cannot be said to be adequate to raise those issues. Collateral pleadings in defence of winding up petition cannot be said to be adequate to raise those issues. ( 13 ) IT is in that view of the matter and on the correct understanding of the supreme Court decision in Gordhandas's case, this Court has no choice but to relegate the petitioner, at this stage, itself to the Civil Court for the balance of the price of the alleged un-delivered supplies of steel. It is only when such a claim is made in a properly framed suit in a Civil Court the respondent will have the opportunity to plead his defence in detail for establishing collusion and fraud. That court which tries that suit will arrive at the proper conclusion and give its decision on the evidence led before it and that should not be anticipated by the company Court in its summary jurisdiction. ( 14 ) THEREFORE, on the facts of this case, the proper thing that this Court may do is to relegate the petitioner to claim the balance of price in a properly framed suit, in the appropriate Court having jurisdiction. ( 15 ) IF the petitioner obtains a decree in the suit which he may file, then this court will certainly will have no hesitation to pass an order of winding up, on a company petition being filed. Therefore, this petition is rejected. --- *** --- .