JUDGMENT K.J. SENGUPTA, J. 1. IN this appeal the order of the learned Company Judge dated 26th February, 2010 is questioned. The learned trial Judge by impugned judgment and order has permanently stayed the said winding up application and the appellant has been given liberty to establish the claim in appropriate proceedings. 2. The facts are summarized hereunder on which the winding up of the Company was prayed for. Pursuant to purchase orders placed by the respondent herein namely the above company, during the period on and from 24th May, 2008 till 5th February, 2009, the appellant-petitioning creditor agreed to manufacture, sell and supply and did supply substantial quantity of Heat Resistant Cast Iron Castings (herein after in short 'HRCI') for construction, erection and installation of Rotary Hearth Furnace. The aforesaid agreement for purchase and sale and supply of the said materials were embodied in the number of the purchase orders themselves. The relevant terms and conditions for sale and supply are as follows:- (i) THE said materials must conform to the stipulated percentage of metallic composition namely Copper and Chromium, (ii) Cancellation or order: We reserve the option to cancel this order without liability or to return goods for rectification or replacement in either of the following circumstances:- (a) Non-delivery by specified date; (b) If materials or workmanship is faulty or of inferior quality or does not conform to our specifications. Should you fail within a reasonable time to rectify or replace goods returned by us, we are free to reject them and purchase elsewhere and you will be liable for any additional expense incurred by us. (iii) All supplies are subject to check and final approval at our godown/factory or our customer's site, test certificate, guarantee certificate, instruction/maintenance manuals stipulated in our order must accompany the supplies. (iv) Neither initial acceptance nor final payment by buyer shall relieve seller from responsibility for defects in designs, materials or workmanship which appear within the period of a statutory limitation, if such work is done under special guarantee within the guarantee period and seller shall remedy such defects at his expense and indemnify buyer or the site owner for any damage or loss caused thereby. However, on acceptance the petitioning creditor put forward following terms and conditions relevant for this appeal are set out hereunder:- 1. However, on acceptance the petitioning creditor put forward following terms and conditions relevant for this appeal are set out hereunder:- 1. Final inspection and acceptance to be done at our works prior to delivery of the materials. Materials will be delivered after receipt of final inspection are made from Wesman, 2. For H.R.C.I. castings we will provide Wesman with integrally cast Test Lugs for testing to be carried out by Wesman at our own cost. Alternatively if required then we will provide Wesman with Material Test Certificate from Government Registered Testing Laboratory. 3. IN terms of the said contract the above materials were sold and delivered and at the instance of petitioning creditor at the site of the company called M/s. ISMT Limited at Pune. It appears in the acceptance of purchase order it is mentioned that goods are to be delivered to the said ISMT Limited at Pune. After manufacturing of the said materials the test of the required metallic composition namely Chromium and Copper were carried out by M/s. Standard Metallurgical Laboratory, a Government registered Metallurgical Testing Laboratory. IN terms of the said contract the goods were inspected by the representatives of the said company and on furnishing of test certificates at their instance in between 24th May 2008 to 16th March 2009 the same was received and thereafter at their instance the same were sent to the factory site of ISMT Company and after delivery of the said good the petitioning creditor/appellant duly raised bills and the same were received and substantial payment was made leaving balance sum of Rs.26,13,870/- after adjusting the advance payment. After delivery of the said goods in or about 6th March, 2009 the company intimated by E-Mail to the petitioning creditor that some of the casting materials were not conforming to the standard as per as the metallic composition are concerned and the said customer ISMT on test being carried out in the independent laboratory rejected part of the goods. It appears from the records that the appellant-petitioning creditor accepted such rejection but agreed to replace the same if same are returned in terms of the guarantee clause. The goods were not returned and it is lying at the factory site of the ISMT. 4. It appears from the records that the appellant-petitioning creditor accepted such rejection but agreed to replace the same if same are returned in terms of the guarantee clause. The goods were not returned and it is lying at the factory site of the ISMT. 4. NOW it is the contention of the petitioning-creditor/appellant that on account of rejection of their customer they had to replace by purchasing from third party and as a result they have incurred expenses additionally. After adjusting of the dues of 24,81,177 and sum of Rs.5000 and odd has become due and payable on account being taken. The aforesaid amount has been demanded on account of the balance amount of liquidated damages aggregating to Rs.30,09,529/-. According to the petitioning creditor the aforesaid dispute is not a bonafide one as their purchase from third party without giving any chance of replacement in terms of the guarantee clause, the claim for alleged suffering of liquidated damages amounting to Rs.30 lakh and odd is not tenable under law. In the affidavit the company asserted that it was specifically made known to the appellant/petitioning creditor the aforesaid materials were meant for the said company and according to their specific designs the orders were placed, therefore their rejection is having cumulative effect in this transaction. In view of nonconforming to standard and quality of the materials the company had to purchase from outside in order to keep the commitment for installation of said furnace. Rejected goods are lying at the factory site at Pune and in fact petitioning creditor has accepted such rejection and agreed to replace the same. 5. Therefore, it is bonafide dispute this bona fide and serious dispute and for which application for winding up is not competent. The learned trial Judge while refusing to pass any order of winding up petition found that before service of statutory notice the dispute has been raised by the company and such a dispute is good enough for the Court to hold that it is a bona fide to non - suit the winding up petition. 6. LEARNED counsel for the appellant contends that the learned trial Judge has committed error in law while accepting the contention of the company that rejection of the goods by its customer is their rejection. 6. LEARNED counsel for the appellant contends that the learned trial Judge has committed error in law while accepting the contention of the company that rejection of the goods by its customer is their rejection. Even after rejection the learned trial Judge did not notice the admitted position that no opportunity was given to replace the materials in terms of the guarantee clause. Learned trial Judge did not notice that under the terms and conditions of the supply without giving any chance of replacement of the goods purchase from the third party cannot be resorted to. Therefore, there is a patent breach on the part of the company and their failure is sought to be imputed to the petitioning creditor. Mr. Gupta, learned counsel appearing for the respondent contends that learned trial Judge is perfectly justified in passing order impugned which does not call for any interference. It will appear from the records that the goods were not of standard quality of stipulation as it was found by the independent Expert after delivery was effected. It is true at the time of delivery of the materials his client relied bona fide on the test certificate furnished by the petitioning creditor. The company did not doubt bona fide as to quality and the acceptance was made based on visual inspection of the size of the materials. Truth revealed only when said materials were tested by their customer company at Pune in fact the sub- standard quality of material has been accepted by the petitioning creditor. Hence the company-appellant in order to maintain its reputation and to retain its customer had to purchase hurriedly for the commissioning of the furnace which was time bound otherwise his client should have faced serious loss and damages. Indeed by this time the company had incurred expenses of more than 30 lakhs by purchasing from third party. After adjusting of 24 lakhs and odd balance amount of Rs.5000 and odd is due and payable. He submits that this fact constitutes bona fide dispute and on identical facts and circumstances in the case of Mannesmann Rexroth (India) Ltd. v. National Engineering Industries Ltd. reported in [2008] 144 Company Cases 573 (Cal) refused to pass any order of the winding up petition. He submits that this fact constitutes bona fide dispute and on identical facts and circumstances in the case of Mannesmann Rexroth (India) Ltd. v. National Engineering Industries Ltd. reported in [2008] 144 Company Cases 573 (Cal) refused to pass any order of the winding up petition. After considering the contention of the learned counsel for the parties it appears to us that learned trial Judge accepted the rejection of the materials by ISMT is a rejection of the company. It seems to us that the learned Trial Judge was swayed by the fact that before service of statutory notice when company raised dispute with regard to the quality and quantity the same is good enough not to pass order of winding up. We are of the view that while adjudging bona fide dispute the Company Court is to look into the extent of the dispute in substance and such dispute must have correlation to the transaction between the parties in normal circumstances and if the transaction is of the nature of principal to principal third party's dispute in connection with the goods cannot legally be brought before the original supplier. On perusal of the materials it appears to us that there was no privy between ISMT and the petitioning creditor in relation to the transaction. According to us, when the company has accepted upon inspection of the goods and on being satisfied by the test report the company has to accept the same. It is true the sub-standard quality of the materials are said to have been accepted but then under the guarantee clause the petitioning creditor was agreeable to replace the same. 7. FROM the letter of the company dated 31st March, 2009 we find that the company refused to return the goods on the plea that new casting has to reach the site first and further on accounts being settled casting would be returned. This in our view is complete breach of the guarantee clause which provides as follows:- "If materials or workmanship is faulty or of inferior quality or does not conform to our specifications. Should you fail within a reasonable time to rectify or replace goods returned by us, we are free to reject them and purchase elsewhere and you will be liable for any additional expense incurred by us." 8. Should you fail within a reasonable time to rectify or replace goods returned by us, we are free to reject them and purchase elsewhere and you will be liable for any additional expense incurred by us." 8. Therefore, by condition and stipulation contained in the general purchase orders make the thing clear that once it is found inferior quality and further does not conform to the specification goods must be returned and chance should be given to replace within reasonable time and in case of failure thereafter the purchase from outside is permissible. In this case admittedly we notice that after rejection of inferior quality there was no demand for replacement of the same by return. On the contrary the company without returning goods and waiting for a reasonable time for replacement has hurriedly purchased the same and is said to have incurred expenses of 30 lakhs and odd. The company is not disputing payability of the balance amount of 24 lakhs and odd to the appellant. In these circumstances whether the dispute of this nature can be said to be bona fide to resist winding up petition. We are of the considered opinion that the relationship between the company and its customer has nothing to do with the petitioning creditor once it is accepted upon compliance of the terms and conditions. Of course, the petitioning creditor cannot be relieved of the liability arising out of the guarantee clause provided the appellant is not prevented from performing its part of the guarantee clause. 9. WE are of the view prima facie of course that the company cannot take advantage of its own breach and withhold the balance amount of Rs.24 lakh on the plea of loss and damages having been incurred. The judgment cited by Mr. Gupta in this case as quoted above are factually different from the present one, as in that case the petitioning creditor supplied the goods on behalf of the company to the ultimate buyer. In true sense the company in that case acted as an agent of the ultimate buyer in other words the transaction between the petitioning creditor and the company and it was not of a principal to principal, but it was between principal to agent of a disclosed principal. In true sense the company in that case acted as an agent of the ultimate buyer in other words the transaction between the petitioning creditor and the company and it was not of a principal to principal, but it was between principal to agent of a disclosed principal. WE have already observed here transaction admittedly principal to principal, mere mentioning the ultimate buyer of the goods in the acceptance of the order does not absolve the liability of making payment by the company. Under these circumstances we find substance in the submission of learned counsel for the appellant that withholding and/or adjusting of the amount of Rs.24 lakhs and odd is unjustified and in complete breach of the terms and conditions of the supply. 10. The impugned judgment and order cannot be upheld wholly. Therefore we in exercise of power under Section 443 of the Companies Act modify the same with the following orders. The company shall furnish security either by way of bank guarantee in any nationalized Bank or in any other form to the satisfaction of the Registrar, Original Side of the Company in the sum of Rs.24,81,177/- within a period of fortnight from the date of receipt of this order and shall keep the security for a period of three months from the date of furnishing. In the event within the time, as above, if any appropriate proceedings is filed as observed by the learned trial Judge by the appellant then the security is to be kept by the Registrar Original Side until further order is passed by the appropriate Court. If no such action is brought within time as above, the security so to be furnished either bank guarantee or otherwise shall be returned and the order of the learned trial Judge in that case would revive.