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2011 DIGILAW 406 (GAU)

Ashok Kumar Agarwal v. Adhunik Cement Ltd.

2011-05-10

HRISHIKESH ROY

body2011
JUDGMENT Hrishikesh Roy, J. 1. Heard Ms. M. Hazarika, learned senior counsel for the Petitioner. The Respondent-company is represented by Mr. G.N. Sahewalla, learned senior counsel. 2. The Petitioner seeks winding up of the Respondent-company under Sections 433 and 434 of the Companies Act, 1956, on the ground that the Respondent-company is unable to pay its debt or should be considered as deemed unable to pay its debts, on demand made by the Petitioner. 3. The Petitioner was engaged as a transporter by the Respondent-company, to carry construction materials from different places like Kolkata, Durgapur, etc., to the factory site of the Respondents at Lumshnong of Jaintia Hills in the State of Meghalaya. According to the Petitioner, the Respondent cleared all the carriage bills raised by the Petitioner until April 25, 2009. But since April 26, 2009, the Respondent dishonoured the Petitioner's bills and accordingly an amount of Rs. 44,58,486 became due from the Respondent. Thereafter, on September 11, 2009, a notice under Section 434 of the Companies Act, 1956, was served on the Respondent-company demanding payment of Rs. 44,58,486 (rupees forty four lakhs fifty eight thousand four hundred eighty six only) within three weeks from the date of receipt of the notice or else winding up proceeding under the Companies Act was threatened against the notice. 4. In their response to the statutory notice, the Respondent denied its liability to pay any amount to the Petitioner and contended that due to misappropriation of goods during transit by the Petitioner, an amount of Rs. 25,73,541 was due to them from the transporter. A further amount of Rs. 51,55,336 was claimed to be payable by the Petitioner for the damage suffered by the Respondent due to short delivery and misappropriation of the construction materials. 5. Appearing for the Petitioner, it is argued by Ms. M. Hazarika, learned senior counsel that assuming that there has been misappropriation of the construction materials during transit, the said loss cannot be attributed to the Petitioner and, accordingly, the counter claim for alleged misappropriation of the transiting goods, cannot be a bona fide defence against the winding up proceeding. 6. Appearing for the Petitioner, it is argued by Ms. M. Hazarika, learned senior counsel that assuming that there has been misappropriation of the construction materials during transit, the said loss cannot be attributed to the Petitioner and, accordingly, the counter claim for alleged misappropriation of the transiting goods, cannot be a bona fide defence against the winding up proceeding. 6. On the Respondent's counter claim for damages, the Petitioner contends that a few of the bill(s) of the labour contractors pertain to the years 2007 and 2008 and since misappropriation is alleged with effect from June, 2009, there can be no justification for the Respondent to adjust the dues of the Petitioner against the expenses allegedly incurred by the Respondent, under the head of "Idle Labour". 7. Referring to the two FIRs filed on July 2, 2009 and July 22, 2009, Ms. Hazarika contends that the allegations in the FIR relate to others and not the Petitioner and therefore, the Respondent cannot fasten the liability of alleged misappropriation of construction materials on the Petitioner. She submits that the construction materials originating from different destinations are brought in large trucks of 40 ton capacity and since these trucks are unable to carry the goods to the factory site located in the Meghalaya Hills, the goods were unloaded at Guwahati and transshipped to its hill destination in smaller trucks. Learned Counsel contends that if due to illegal acts of the truck drivers, loaders and weigh bridge employees, the Respondent incurred additional expenses, the resultant counter-claim cannot be a bona fide defence of the Respondent, in a winding up proceeding. 8. Learned Counsel finally submits that even assuming that the Petitioner is required to compensate the Respondent for the misappropriated materials amounting to Rs. 25,73,541 considering that the Petitioner is entitled to receive Rs. 44,58,186 as transportation charge, even after squaring accounts for the balance due, the winding up petition is maintainable. 9. Mr. G.N. Sahewalla, learned senior counsel submits that the Respondent-company is a part of a large corporate group of about 8 functioning companies and the project value of the proposed cement company set up by the group is worth about Rs. 614 crores. Learned Counsel accordingly submits that the Respondent is a solvent and going concern and cannot be deemed to be insolvent by application of Section 434 of the Companies Act. 614 crores. Learned Counsel accordingly submits that the Respondent is a solvent and going concern and cannot be deemed to be insolvent by application of Section 434 of the Companies Act. He contends that the Petitioner's claim is a highly disputed claim and considering the Respondent's counter-claim, the invocation of the company court's jurisdiction is inappropriate in the present case. 10. The Petitioner as the appointed transporter was responsible for safe transshipment of the construction materials to the factory site at Lumshnong and accordingly counsel submits that they cannot pass on the responsibility for loss of the transiting materials, to the sub-transporters. The Respondent having executed the carriage contract only with the Petitioner, without involvement of any third party, the Petitioner according to the Respondent is solely responsible to compensate the loss in transit. 11. Mr. Sahewalla submits further that the Respondent's defence is not an afterthought or a counter-blast to the winding up proceeding since at the very first instance, in its response to the statutory notice, the Defendant projected its counter-claim for the loss of the materials carried by the Petitioner as the transporter of the Respondent-company. 12. Referring to the debit note dated July 31, 2009, for Rs. 25,73,541 and the second debit note dated August 3, 2009, for Rs. 35,55,336 learned senior counsel contends that as per the arrangement with the transporter, the transshipment loss and the extra expenses on the "idle labour" component were debited from the account of the Petitioner and only after receiving the two debit notes in July/August, 2009, the Petitioner as a counter-blast had issued the statutory notice, demanding payment of its alleged dues from the Respondent. 13. On consideration of the confessional statement(s) of the driver of the truck and the employee of the weigh bridge recorded during June, 2009 and the two FIRs lodged at Lumshnong Police Station by the CEO of the Respondent, it can be safely concluded that the construction materials were misappropriated during transit by replacing the steel rods, pipes, etc., in the trucks, with sand and boulders. Whether the Petitioner was personally responsible for the theft of the materials, cannot however, be conclusively determined at this stage, since there is no information on the stage of the police investigation. Whether the Petitioner was personally responsible for the theft of the materials, cannot however, be conclusively determined at this stage, since there is no information on the stage of the police investigation. But being the transporter, the Petitioner definitely had the entire responsibility for safe delivery of the materials at the factory site and they cannot escape the responsibility as a transporter, if there is pilferage of the transiting goods. 14. From the timing of the two FIRs which were filed on July 2, 2009 and July 22, 2009, by the Respondent it can be easily inferred that misappropriation of the carriage goods were going on for quite sometime and the details of the modus operandi is given by the Respondent in paragraph 3(xiv), (xv), (xvi), (xvii) and (xviii) of the affidavit-in-opposition. The averments show how the goods were pilfered during transit and the steps taken by the Respondent to catch the culprits in the act. The "idle labour" expenses forced upon the Respondent due to short delivery of material is also reflected in the counter affidavit of the Respondent, the relevant portions of which are extracted hereinbelow for ready reference: 3. (xiv) But from the last 2 years, the company used to receive complaints from their site office, at Meghalaya, that the Petitioner was supplying less materials than consigned. Due to shortage in materials delivered by the Petitioner the company had to stop the construction work of the factory occasionally and subsequently same was found to be as a consequence of the wrongful activities of the Petitioner, the company suffered may idle days, the cost of which has been assessed as Rs. 51,55,532 only and lien has been exercised by the company over the said amount against the Petitioner who is liable to pay the same to the company in the following manner: Sl. No Particulars Bill dates Amount (Rs.) 1. Idle working labour charges charged by M/s. Buildwell Constructions due to shortage of materials 13-9-2007, 8-4-2008, 15-8-2008, 24-6-2009 and 15-7-2009 11,14,766 2. Idle working labour charges charged by M/s. Venu Engineers due to shortage of materials 12-1-2008,10-5-2008, 12-9-2008, 30-2-2008, 19-9-2008, 7-3-2009 and 14-9-2009 10,78,918 3. Idle working labour charges charged by M/s. Anna Engineering Constructions Co., due to shortage of materials 7-11-2007,15-3-2008, 18-6-2008, 19-12-2008 and 12-9-2009 16,54,730 4. Idle working labour charges charged by M/s. Venu Engineers due to shortage of materials 12-1-2008,10-5-2008, 12-9-2008, 30-2-2008, 19-9-2008, 7-3-2009 and 14-9-2009 10,78,918 3. Idle working labour charges charged by M/s. Anna Engineering Constructions Co., due to shortage of materials 7-11-2007,15-3-2008, 18-6-2008, 19-12-2008 and 12-9-2009 16,54,730 4. Idle working labour charges charged by M/s. New Asians Engineers and Contractor due to shortage of materials 9-11-2007, 24-4-2008, 15-7-2008, 20-12-2008 and 10-5-2009 13,06,918 Total 51,55,332 (xv) All the aforesaid contractors have raised their bills upon the company, on account of their idle labour charges, as aforesaid, and the same accrued only due to short supply of materials by the Petitioner, in the project. Copies of the aforesaid demand made by the aforesaid contractors are annexed here to and marked Annexure C. (xvi) On the basis of the said complaint, the company instructed their Meghalaya office to be vigilant and to the utter surprise of the company, between June 11, 2009 to June 15, 2009, the men of the Petitioner were caught red-handed and found misappropriating the carried materials, by following modus operandi: (a) The Petitioner used to unload the materials at Guwahati, for transshipment in the process and used to hand over those materials to third parties, for onward transportation of the material from Guwahati to factory site, situated at Meghalaya. (b) During this transshipment process they used to misappropriate huge materials from the trucks by using malpractices, involving other person's small gain. One of the malpractice used is to substitute the construction materials by stone boulders. (c) They used to sell such misappropriated materials and distribute the sale proceeds, amongst themselves. (d) When the persons of the Respondent-company caught the trucks red-handed loaded with stone and boulder to match the weight of truck load. The company immediately informed Mr. Ashoke Kumar Agarwal, the proprietor of Agarwal Carrying Corporation over telephone to provide details of the transporter's investigation period, to the Respondent-company's astonishment he replied that he did not know all these transporters. (e) During the investigation period, the Respondent-company had asked Mr. Ashoke Kumar Agarwal, to provide the details of transport engaged by them for re-transport of the material, which he could not provide for investigation with a fear of the truth coming out. (f) During our investigation the Respondent-company came to know that this practice were used by those persons for long and Mr. Ashoke Kumar Agarwal, to provide the details of transport engaged by them for re-transport of the material, which he could not provide for investigation with a fear of the truth coming out. (f) During our investigation the Respondent-company came to know that this practice were used by those persons for long and Mr. Gurucharan owner of VFR Hardware, Jowai and Mr. Mahendra, and manager of 7th Mile Petrol Pump used to purchase these stolen materials till date. (g) The lion's share of the realisation was handed over to Mr. Ashoke Kumar Agarwal. All these were as per the statement dated June 30, 2009, of Mr. Shiv Shai, one of the accused involved in the racket. (h) With an intention of delaying the process Mr. Ashok Kumar Agarwal called up many times to settle the matter out of court and failing to do so the Respondent-company had lodged FIR on July 22, 2009, with the officer-in-charge, A.D. Camp, P.S. Lumshnong, Jaintia Hills, Meghalaya. (xvii) The men of the Petitioners had confessed and admitted by issuing a letter of admission of their misdeeds and copies of the same are annexed here to and marked as annexure D. (xviii) That the company has come to know the aforesaid facts, from the men of the complainant, and on July 2, 2009 and another on July 22, 2009, two separate FIRs have been filed against the men of the Petitioner as well as against Agarwal Carrying Corporation. Copies of the said FIRs lodged by the company against the men of the Petitioner as well as against the Petitioner dated July 2, 2009 and July 22, 2009, are annexed here to and marked as annexures E and F respectively. 15. As regards "idle labour" charge suffered by the Respondent for short delivery of the construction materials, the Petitioner is correct in saying that some of the bills referred to by the Respondent pertain to the years 2007 and 2008 and the entire amount claimed against "idle labour" component, may not be attributable to the default of the transporter. But the precise amount of extra cost that the Respondent had to incur for default of the Petitioner, is a matter of evidence and the company court is obviously not the appropriate forum for quantifying the entitlement of the Respondent. 16. But the precise amount of extra cost that the Respondent had to incur for default of the Petitioner, is a matter of evidence and the company court is obviously not the appropriate forum for quantifying the entitlement of the Respondent. 16. The two debit notes forwarded to the Petitioner by the Respondent on July 31, 2009 and August 3, 2009, respectively may also have a material bearing in this case. Although the Petitioner denies delivery, the receipt(s) of the courier company through whom the debit notes were couriered to the Petitioner are enclosed. Therefore, although it would be a matter of evidence as to whether the debit notes were actually delivered, the timing of the debit notes is a matter of some significance. This is because the statutory notice under Section 434 of the Companies Act was issued against the Respondent-company on September 11, 2009, perhaps soon after the debit notes were delivered to the Petitioner. 17. Therefore, the question that has to be answered in this proceeding is whether a substantial dispute has been raised by the Respondent on the claim made by the Petitioner. Here, the two FIRs which were filed in July, 2009 can definitely throw some light. It is noteworthy that the FIRs were filed well before any claim was made by the Petitioner against the Respondent-company and in the Respondent's FIR it was clearly alleged that the building materials were being misappropriated during transit. Therefore, the case now projected by the Respondent of pilferage of the transiting goods, cannot be said to be an afterthought or a counter-blast to the winding up proceeding. 18. Although it might be a matter of evidence as to the amount of additional expenditure that the Respondent incurred on account of "idle labour" for short delivery of goods by the transporter, the contention raised by the Respondent on this count cannot, in my view, be considered to be non-bona fide. 19. While considering a winding up petition on an allegation that the company is unable to pay its debts, the first imperative is to examine whether the debt is beyond dispute. If the company raises a bona fide dispute, the Petitioner cannot be placed in the category of a creditor of the company. 19. While considering a winding up petition on an allegation that the company is unable to pay its debts, the first imperative is to examine whether the debt is beyond dispute. If the company raises a bona fide dispute, the Petitioner cannot be placed in the category of a creditor of the company. If there are materials and substantive basis for the dispute raised by the company, it would not be appropriate for a company court to proceed in a winding up proceeding. Undoubtedly the company court should look into the causes of refusal by the company to pay, before coming to the conclusion that, the company's refusal is supported by a reasonable cause or a bona fide dispute in which the dispute can only be adjudicated by a trial in a civil court. 20. The company court while exercising the powers under Sections 433 and 434 of the Companies Act is not in a position to decide who defaulted in discharging its obligation under the contract, which calls for detailed examination of various aspects of the objection and also examination of evidence. It may also involve interpretation of the terms and conditions of the agreement amongst the parties. 21. It must also be borne in mind that a party to the dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt, especially when the aggrieved party has alternate remedy in different forum. The jurisdiction of the company court cannot be permitted to be abused by entertaining a winding up petition to put pressure on a company to pay disputed debts since entertainment of such petition and its advertisement, certainly damages the company's credit-worthiness and its reputation amongst its customers and public. The company court, therefore, should act with circumspection, care and caution and decide in the first instance whether, a substantial dispute is raised by the company with regard to the debt claimed against it. 22. On a detailed analysis of all aspects of the matter, I am of the considered opinion that there is a bona fide dispute on the claim made against the Respondent-company and it would not be just and proper to accept this winding up petition, to pressurize the Respondent to pay a disputed debt. 23. 22. On a detailed analysis of all aspects of the matter, I am of the considered opinion that there is a bona fide dispute on the claim made against the Respondent-company and it would not be just and proper to accept this winding up petition, to pressurize the Respondent to pay a disputed debt. 23. The company court is not expected to hold a full trial to decide on the veracity of the claim made by the Respondent as this is a summary proceeding where the debt should be a matter of prima facie inference. If the debt is bona fide disputed, there cannot be "neglect to pay" within the meaning of Section 433(1)(a) of the Companies Act, 1956. Consequently, when there is no neglect, the deeming provision under Section 434 does not come into operation and the Respondent cannot be ordered to be wound up under Section 433 of the Companies Act, 1956. 24. For the foregoing reasons and having regard to the ratio laid down by the apex court in IBA Health (I) P. Ltd. v. Info-Drive Systems Sdn. Bhd. reported in [2010] 159 Comp Cas 369 : [2010] 10 SCC 553, I see no merit in this winding up petition and the same is accordingly dismissed. Petition dismissed.