Judgment : 1. The petitioners Ravindra & Company and Dilsukhraj Cotton Company filed two company petitions in C.P.Nos. 333 and 365 of 2003 against the respondent company Sri Karunam-bikai Mills Private Limited under sections 433 (e) and (f), read with 439 and 434 (i) (a) and (c) of the Companies Act, 1956 seeking for the relief of winding up of the respondent Company and appointment of an Official liquidator to take charge of the respondent Company under the provisions of the Companies Act. 2. In these two petitions, except the amount due to the petitioners companies, all other allegations are one and the same. Hence, the facts of the company petition No.333 of 2003 are taken up as a typical case for consideration for which course of action, both the counsel for the petitioners as well as the respondent agreed to and only on that basis, arguments have been advanced by either side. 3. The case of the petitioners in C.P.No. 333 of 2003 is as follows:- The respondent company is a spinning mill used to purchase cotton from the petitioners company. The terms of payment as per the sales contract were the respondent Company would make payment within sixty days from the date of supply of cotton bales to the respondent mill failing which the respondent would be liable to pay interest at the rate of 24 percent per annum for delayed period. As the respondent was very irregular in paying the dues, the petitioners sent letters, telegrams, reminders and debit notes periodically for payment of the dues. The respondent through their letter dated 1.3.2003 admitted that a sum of 58,89,845/-was outstanding. In spite of that, the said amount has not been paid. The respondent Company expressed that due to the poor collection and severe crisis in their business, they are unable to meet the dues to the petitioners company. The respondent Company was indebted to the petitioners a sum of Rs. 58,89,845/- as principal amount. It is an undisputed admitted and liquidated sum due from the respondent Company. The petitioners on 18.6.2003 issued a statutory notice calling upon the respondent to pay its admitted liability along with interest at 24 percent per annum for belated payment within 21 days of receipt of the notice. However, the respondent by reply also contended that the confirmation made by letter dated 1.3.2002 was cancelled by their letter dated 16.2.2002. The petitioners on 18.6.2003 issued a statutory notice calling upon the respondent to pay its admitted liability along with interest at 24 percent per annum for belated payment within 21 days of receipt of the notice. However, the respondent by reply also contended that the confirmation made by letter dated 1.3.2002 was cancelled by their letter dated 16.2.2002. The respondent with mala fide intention alleged that the quality of cotton supplied was inferior due to the result of which they suffered huge loss without quantifying it. As per the balance sheet filed along with the petition, the respondent company was commercially insolvent and that it has been borrowing huge sum of money from several other creditors and has huge liabilities. The respondent Company is no longer commercially viable one. The petitioners sent a rejoinder dated 26.7.2003. From it and from various correspondences, it is very clear that the petitioners is commercially insolvent and it is unable to pay its admitted liability. Hence, the petition for winding up. 4. Therespondent company filed counter contending inter alia that the cotton supplied by the petitioners was inferior in quality and the same was brought to the notice of the petitioners from time to time. That due to the poor quality of the cotton supplied, the yarn production was not according to the quality specification and therefore the goods could not be sold in the market. Further, on account of the poor quality, the respondent could not obtain the desired quality production. In respect of the dispute regarding the quality, the respondent subjected the cotton of the petitioners to lab testing and based on the lab report about the quality of the cotton supplied, the respondent made claim for loss sustained. The debit notes for interior quality of cotton supplied by the petitioners have been sent by the respondent to the petitioners from time to time, wherein particulars of poor quality and the amount of loss sustained by them and compensation claimed on account of the quality allowances have been informed to the petitioners. Claiming compensation, the respondent filed a suit in O.S.No. 595 of 2003 before the Subordinate Judge, Tiruppur. Claiming compensation, the respondent filed a suit in O.S.No. 595 of 2003 before the Subordinate Judge, Tiruppur. Thereupon, on the assurance given by the petitioners that the quality would be improved for the subsequent supplies, the respondent paid substantial amounts towards the supply made after taking into account the amount claimed in the debit note in the final settlement of account. It is the petitioners, who owes money to the respondent. After filing of this Company petition, the petitioners filed a suit in O.S.No. 37 of 2004 against the respondent before the Civil Judge, Senior Division, Raichur seeking to recover a sum of Rs.96,30,124/- from the respondent. The suit claim is the sum due, which formed basis for the company petition. Further, it is contended by the respondent that the petitioners filed an application in the pending suit before the Subordinate Judge, Tiruppur questioning the jurisdiction. The same was dismissed and that order was carried on revision before this Court and this Court also non-suited the petitioner for nay relief. When there is a bona fide dispute in respect of the dues as claimed in the Company petition and as a matter of fact, the respondent has claimed amount from the petitioner, on the basis of the debit note furnished to them, which is pending before the competent civil court and the further fact that the petitioner has filed another suit in the Raichur Court for recovery of the amount, which form the basis for filing the company petition, the company petition deserves to be dismissed. Apart from that, the averment of the petitioner that the company has become commercially insolvent is totally baseless and made to suit the convenience of the petitioner to file this petition. Only prior to the filing of the company petition, the respondent company was sustaining loss due to the poor quality of the cotton supplied. Even prior to the filing of the company petition in the year 2003, the respondent company has been making profit considerably. The respondent has modernised the mill and the respondent company is continuously making profit, which is evident from the profit and loss account. The creditors of the company have also given letter about the solvency of the respondent company. In such circumstances, the company petition based on arbitrary and imaginary facts and filed ostensibly to exercise pressure for repayment of the disputed dues has to be dismissed. 5. The creditors of the company have also given letter about the solvency of the respondent company. In such circumstances, the company petition based on arbitrary and imaginary facts and filed ostensibly to exercise pressure for repayment of the disputed dues has to be dismissed. 5. Kalyan Jobbac, learned counsel appearing for the petitioner contended that the respondent by their letter dated 16.2.2002 and 1.3.2002 has accepted the liability and as such they cannot now wriggle out and contend otherwise. He further contended that the document not put forward by the respondent before this Court to contend otherwise are all self serving documents made to suit the convenience of the respondent so as to deprive of the petitioner to have the relief in this company petition. However, on the point of commercial insolvency alleged, the learned counsel has not made any argument in view of the material documents available against his contention. 6. Per contra, Arvind Pandian, learned counsel appearing for the respondent submitted that the reliance of the petitioner on the letters dated 16.2.2002 and 1.3.2002 cannot form basis to come to the conclusion that the respondent admitted the liability. The statutory notice sent on 18.6.2003 by the petitioner has been suitably replied by the respondent in their reply notice dated 26.7.2003 by disputing the amount. In view of the supply of poor quality cotton bales, the respondent raised debit notes and on that basis filed a suit in O.S.No. 595 of 2003 before the Subordinate Judge, Tiruppur in which various debit notes from 30.6.1988 to 25.6.1999 have been marked. In that suit, the respondent herein sought for a decree against the petitioner for a sum of Rs.1,06,305/- together with interest at the rate of 12 percent. All the amounts that the petitioner now claims from the respondent as admitted liability were taken into account and only after giving credit to certain amount and after taking into consideration of the debit notes, the said amount was claimed from the petitioner. Further, the petitioner also filed a suit in Raichur Court against the respondent claiming the amount, which form basis for filing of the company petition. When there is a bona fide dispute and the disputes are pending and judication before the Civil Courts, the action of the petitioner for having the respondent declared as commercially insolvent is nothing but abuse of process of law. When there is a bona fide dispute and the disputes are pending and judication before the Civil Courts, the action of the petitioner for having the respondent declared as commercially insolvent is nothing but abuse of process of law. The respondent company is commercially solvent and continuously making profit. The company Petition deserves to be dismissed. 7. I heard the arguments of the learned counsel on either side and perused the material on record. 8. The basis for filing the company petition is that the respondent Company, admitted the liability by their telegram dated 16.2.2002 and letter dated 1.3.2002. A perusal of these documents shows that by the first of the document telegram dated 16.2.2002, the respondent has only informed the petitioner the balance shown in he petitioners telegram was not tallying with the respondents books of accounts and requested the petitioner to send a statement of accounts for reconciliation. The letter dated 1.3.2002 also informed the petitioner that there was a balance of Rs.58,89,845/-in the respondents books of accounts and requested the petitioner company to send their statement for reconciliation. The statutory notice dated 18.6.2003 has been replied by the respondent by stating that the confirmation given by the old management was subject to reconciliation and verification of accounts. The respondent by letter dated 19.4.2002 informed the petitioner to treat the confirmation letter dated 1.3.2002 as cancelled and further informed that during the year 1998-2000, the petitioner supplied cotton of inferior quality and as a result of which the respondent has suffered huge loss. The issue of quality complaint and resultant loss were duly intimated from time to time. 9. As seen from the letter dated 20.9.1999, which is made available at page No.24, of the typed set of papers filed by the respondent, a quality dispute had arisen even prior to the alleged admission of liability letter dated 1.3.2002. The issue of quality complaint and resultant loss were duly intimated from time to time. 9. As seen from the letter dated 20.9.1999, which is made available at page No.24, of the typed set of papers filed by the respondent, a quality dispute had arisen even prior to the alleged admission of liability letter dated 1.3.2002. In the letter dated 20.9.1999, the respondent informed the petitioner about the huge loss sustained by the respondent as a result of poor quality of the cotton bales supplied by the petitioner and the petitioner was informed that they should compensate for the loss and details of the debit notes, which the respondent raised, were given therein amounting to a sum of Rs.11,94,350/- and by the subsequent letter dated 16.2.2002, which is made available at page No.25, the debit notes were quantified to Rs.49,81,650/-Apart from that, by the letter dated 30.6.1998, the respondent has informed the petitioner about the poor quality by referring the test report of the laboratory. These are all the period from 13.4.1998 to 29.4.1998 i. e, prior to filing of the company petition. Like that, another letter from the respondent company dated 30.9.1998 also speaks about the quality of cotton supplied and the test report, which are all for the period from July, 1998 to September, 1998. Likewise, for the period from November 1998 to December, 1998, there was a correspondence date 29.12.1998 by the respondent to the petitioner informing the poor quality. The subsequent letters dated 15.4.1999, 1.7.1999 and 30.10.1999 would all go to show that the respondent periodically raising the debit notes on the ground of poor quality of the cotton supplied by the petitioner for various amounts. From the petitioners ledger of the respondent company available at page No. 85 of the typed set of papers, it is evident that the debit notes and the bills were accounted for and as on 1.4.1999 to 31.3.2000, a sum of Rs.34,13,076/- was debited in the account of the petitioner by the respondent company. These documents clinch the issue and manifestly prove that there was a bonafide dispute raised and existed even prior to the filing of the company petition in the month of September, 2003. In November, 2003, a suit has been filed by the respondent herein for recovery of a sum of Rs. 1 lakh and odd. These documents clinch the issue and manifestly prove that there was a bonafide dispute raised and existed even prior to the filing of the company petition in the month of September, 2003. In November, 2003, a suit has been filed by the respondent herein for recovery of a sum of Rs. 1 lakh and odd. Likewise, the petitioner also filed a sit for recovery of money in Raichur Court and these suits are pending and the parties are contesting the same. In the above said factual background, I am of the view that the petitioner cannot succeed for having an order from this Court for winding up of the respondent company. 10. The rule of winding up of company on a creditor petition is if there is a bonafide dispute about the debt and the defence is substantial one, the defence of the company is in good faith and of substance and is likely to be succeeded on a point of law and the company adduced prima facie proof of the fact on which the defense depends, no order of winding up would be made by the Court. Further, under Section 557 of the Companies Act, 1956, in all matters relating to winding up of the company, the Court may ascertain the wishes of the creditors if for some good reason the creditors objected to the winding up order the Courts may in its discretion may refuse to pass such an order and also winding up order will not be made on a creditors petition if it would not benefit the creditors or the companys creditors in general. The above was the observation made by the Supreme Court in the often quoted judgment of the Supreme Court in the case of Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P) Ltd. AIR 1971 SC 2600 : (1971) 3 SCC 632 . If the above said well established principle is applied to the facts of the present case, in this case the respondent has established by materials that there is a bonafide dispute about the debt and the defence of the respondent is substantial in nature. 11. That apart, one of the creditors of the respondent Company, the Indian Bank by the letter dated 4.5.2004 has stated that it was observed that the sales have increased to Rs.4177.97 lakhs form Rs.3739.27 lakhs (31.3.03), an increase of 12% over last year. 11. That apart, one of the creditors of the respondent Company, the Indian Bank by the letter dated 4.5.2004 has stated that it was observed that the sales have increased to Rs.4177.97 lakhs form Rs.3739.27 lakhs (31.3.03), an increase of 12% over last year. The company could improve the net profit to Rs.142.26 lakhs and cash profit to Rs.244.07 lakhs. The share capital has been enhanced to Rs.601.69 lakhs form the level of Rs.276.69 lakhs by bringing an additional capital of Rs.325 lakhs. All these measures have helped the company to improve the credit rating to “A” from “B” as on 31.3.03. Hence, the observation of the Supreme Court in the above said Madhu-sudan Gordhandas case is squarely applicable to the facts of the case against the petitioner. 12. Apart from the above letter of the Indian Bank, which is above referred, a mere perusal of the companys audited balance sheet made available in the types set of papers, would clearly show that the respondent company is going strong from the year 2000-2001 i. e, for the year, 2001-2002, the current assets were 917.17 lakhs as against the liability of 880.4 lakhs, which was further improved in the year 2002-2003, where the current assets was 958.84 lakhs as against the liability of 742.56 lakhs. In the year 2003-2004, the current assets was Rs.1621.05 lakhs as against the liability of Rs.1203.50 lakhs. The current ratio for the year 2001-2002, 2002-03 and 2003-04 is 1.04, 1.29 and 1.35 respectively. Thus, the financial position of the respondent is very sound. 13. From the above, it is clear that the respondent company has raised a substantial dispute in respect of the amount claimed by the petitioner company. The respondent company has placed the material on record in support of its contention that there was a genuine and bonafide dispute between the parties. The financial institutions have also considered the company as a viable company and advanced amount. There was neither inability on the part of the respondent company nor negligence to pay the amount. Further, the parties have already laid suits before the competent Civil Court. The Civil Court would examine the correctness of the contentions of both parties and pas appropriate orders in the suit. There was neither inability on the part of the respondent company nor negligence to pay the amount. Further, the parties have already laid suits before the competent Civil Court. The Civil Court would examine the correctness of the contentions of both parties and pas appropriate orders in the suit. As the respondent to company is regarded as a commercial solvent company having regard to the financial statement as reflected in the balance sheet for various years, and on the basis of the materials placed, the dispute raised by the respondent is also considered as a bonafide dispute, I am of the view that the admission of the petition is annulled for, unnecessary and would otherwise cause stigma to the respondent company. 14. In the result, the company petitions are dismissed. Consequently, the connected company application No.1932 of 2003 is also dismissed.