C. Subba Rao v. Rasmi Die-Castings Limited

1. This company petition is filed by Sri G. Subba Rao, Chartered Accountant, under Section 433(e) and (f), read with Sections 434(1)(e) and 439(1)(b) of the Companies Act, 1956 and under Rule 95 of the Company Court Rules, 1959, praying that the respondent-company by name Rasmi Die-Casting Limited be wound up in accordance with the provisions of the Companies Act, 1956 and to pass such orders as this Honourable Court deems proper in the circumstances of the case. In the petition it is stated that the petitioner as Chartered Accountant was associated with the respondent-Company and a sum of Rs. 4.00 lakhs is due to the petitioner by the respondent-Company on account of the professional services rendered by the petitioner and also in respect of the unsecured advances made by the petitioner through his wife as well in his capacity as the karta of the HUF; etc. It is further stated that in view of various claims which the petitioner had against the respondent-Company a Memorandum of Settlement was drawn up on 25-9-1993 between the petitioner and Mr. K.S.S Niranjan Rao representing the respondent-Company and in terms of the said Memorandum of Understanding (hereinafter referred to as ‘MOU’) the respondent-Company and Mr. K.S.S Niranjan Rao had jointly and severally agreed to pay Rs. 4.00 lakhs in terms of Para 3(2) of the said MOU. It is further stated that the said Rs. 4.00 lakhs was payable in four (4) equal instalments of Rs. 1,00,000/- each., on 29-9-1993, 31-12-1993, 3-6-1994 and 31-12-1994 and accordingly the respondent-Company paid the first instalment of Rs. 1,00,000/- to the petitioner. It is further stated in the petition that Sri K.S.S Niranjan Rao addressed a letter dated 19-1-1994 to the petitioner and in that he stated with the mala fide intention that certain alleged permissions were required under the Companies Act for the purpose of making the said payment and the said payments could not be made by the respondent. To that letter the petitioner respondended by his letter dated 9-2-1994 stating that if the respondent fails to not implement the agreement the petitioner would take appropriate action in terms of Clause 3.3 of the MOU, and by his further letter dated 3-6-1996 the petitioner stated that without prejudice to the earlier claims made by the petitioner the petitioner was invoking Clause 8 of the MOU and the respondent may consider for the appointment of an Arbitrator for settling the dispute. The respondent did not reply to the said letter. Thereafter the petitioner got issued a legal notice dated 2-9-1996 under the provisions of Section 434 of the Companies Act, 1956 demanding the payment of the balance of Rs. 3.00 lakhs with interest @ 24 per cent per annum. It is also stated in the petition that the petitioner reserved his right to proceed against Mr. K.S.S Niranjan Rao also. The petition further alleges that the respondent has not cleared the outstanding amount and accordingly the respondent is unable to pay its debt and consequently it ought to be wound up in the interest of justice.

2. This Court issued notice before admission to the respondent on 23-12-1996. The proceeding sheet of the case shows that on 6-2-1997 there was a direction to print the name of the respondent and to post on 10-2-1997. The proceedings sheet dated 10-2-1997 shows that the respondent though served was not present on that day and accordingly the Company Petition was admitted and accordingly this Court directed for advertisement in “News Time” and “Andhra Prabha”. Thereafter the matter was directed to be posted for proof of publication on 10-3-1997. Meanwhile two applications were filed by the respondent-Company. C.A No. 103/97 to set-aside the order dated 10-2-1997 passed in C.P No. 125/96. The said application is supported by two affidavits (1) by D. Narayana Rao, Clerk of the respondent Counsel and the affidavit of the respondent Counsel himself. In his own affidavit the learned Counsel for the respondent-Company stated that the case was posted on 6-2-1997 after service of the notice on the respondent. The respondent engaged him in the case by executing a vakalat in his favour on 5-2-1997 evening and he accepted the same. He further stated that the matter was to be listed on 6-2-1997 and he checked up the cause list, but missed to note the posting since the name of the petitioner was not printed and in the evening on 6-2-1997 he gave the vakalat to his clerk for filing the same in the Court. But his clerk had to leave Hyderabad without informing him, he could not file the vakalat on 7-2-1997. On 10-2-1997 the petition was posted for printing the name of the respondent and his name was not printed. His clerk returned to Hyderabad on 12-2-1997 night and on 13-2-1997 he filed the vakalat for the respondent. But on enquiry it was learnt that the case was posted on 10-2-1997 and accordingly it was admitted as there was no representation on the part of the respondent. He further submitted that his non-appearance on 10-2-1997 was neither wilful nor wanton but purely accidental. Therefore, this Court may be pleased to set aside the order dated 10-2-1997. He also filed C.A No. 221/97 for staying the order of this Court dated 10-2-1997 pending the disposal of the application in C.A No. 103/97. By filing the counter affidavit Sri G. Subba Rao has denied the allegations made in C.A No. 103 of 97. He further stated that as per the order dated 10-2-1997 there has already been advertisement in the papers. Therefore, the application is infructuous and not maintainable. When the C.A No. 103/97 and C.A No. 221/97 had come up before the Court for consideration the learned Counsel on both sides submitted that the main Company Petition itself could be taken up for final hearing since the respondent had already filed its objections and the pleadings are complete. It is in these circumstances, I heard the learned Counsel on both sides on C.P itself. Opposing the C.P the respondent filed a counter denying the allegations made in the C.P It is stated that the petitioner is trying deliberately to mislead this Court by describing himself in the cause title as a Chartered Accountant and also describing himself as a Chartered Accountant of the petitioner, in the affidavit, filed in support of the C.P and in these circumstances it is not possible to ascertain who is the petitioner before this Court and to whom the alleged amounts are due to be paid. Thus, the petition for winding up is not maintainable. It is also not stated as to how the petitioner was representing Neeth and Company, because in the cause title it is stated ‘Neeth and Company Chartered Accountants’ and there is no agreement whatever between Neeth and Co. and the respondent-Company and Neeth and Co. was not a party to the MOU dated 25-9-93 and there was no notice issued by or on behalf of Neeth and Co., under Section 433 of the Companies Act, 1956 and of this count also the petition is liable to be dismissed. It is further stated in the counter that the petitioner Sri G. Subba Rao was promoter and Director of the respondent-Company along with Sri K.S.S Niranjan Rao. The further allegation of the petitioner that a sum of Rs. 3.00 lakhs was due from the respondent-Company towards his professional services was not true and correct and there is no agreement between the petitioner and the respondent-Company regarding any professional services alleged to have been rendered by the petitioner. There was no such proposal before the Company nor there is any resolution to that effect by the company for entering into the agreement between the petitioner and the respondent Company for professional services. Further it is stated that the petitioner was not the creditor of the Company much less an unsecured creditor and no amounts were due to the petitioner from the respondent-Company. The further allegation of the petitioner that the petitioner made unsecured advance to the Company in his capacity as HUF is denied. Even the allegation regarding the commission on the alleged guarantee executed on behalf of the company in favour of the financial institution is denied. It is further stated that both Sri G. Subba Rao and Sri K.S.S Niranjan Rao signed an agreement dated 2-5-1996 entered into between the respondent-Company and A.P Industrial Development Corporation and these agreements prohibit payment of any commission for the guarantee. It is further stated that no amount was due to Neeth and Company, even as on 10-10-1991 from the respondent-Company. The alleged MOU, dated 25-9-1993 was not between the petitioner and the respondent-Company and Mr. K.S.S Niranjan Rao did not represent the respondent-Company. It is further stated that the entire claim put forth by the petitioner against Sri K.S.S Niranjan Rao was in his individual status but not on behalf of the R. Company. The Managing Director cannot enter into any agreement or undertaking to make any financial commitment without the Board of Directors approving and passing a resolution. The said MOU is not valid since it is not signed by duly constituted attorney on behalf of the company under the seal of the company in terms of Section 48(2) of the Companies Act, 1956 and Article 131.2 of the Articles of Association of the respondent-company. Regarding the payment of Rs. 1,00,000/- by the respondent-company to the petitioner is concerned it is stated that the petitioner expressed that he was in dire need of money urgently and accordingly Sri K.S.S Niranjan Rao directed the office to repay Rs. 50,000/- the unsecured loan of the petitioner and another amount of Rs. 50,000/- by way of payment out of a part of the unsecured loan to Sri K.S.S Niranjan Rao and it is towards this amount only the cheque for Rs. 1,00,000/- was issued to the petitioner and as such it was not the payment towards the first instalment by the respondent-company in terms of MOU. Moreover, vide letter dated 19-1-1994 respondent-Company informed the petitioner that Sri K.S.S Niranjan Rao cannot bind the company by his individual acts and by another letter dated 23-1-1995 the respondent-Company denied categorically the alleged MOU. It was in those circumstances the petitioner invoked Arbitration Clause 4(8) of the MOU. It is stated that the alleged liability being disputed cannot be treated as a debt for the purpose of Sections 433 and 434 of the Companies Act, 1956. The averment that the respondent-company is unable to pay its debts is false and incorrect and in fact the petitioner was the Director of the respondent-Company till the end of December, 1993 knows the balance sheet of the company and its assets also. It is further stated that after repaying the term loans to the financial institutions aggregating more than Rs. 5.00 crores, within time, the respondent-company has declared dividend of 15%, 20% and 20% during the last four consecutive years and the respondent-company has reserves to the extent of Rs. 1,74,01,764/- and the same is reflected in the last audited balance sheet adopted in the 11th Annual General Meeting. It is also stated that A.P.S.F.C has placed the respondent-company in ‘A’ category. Moreover the alleged liability under the MOU are barred by limitation. In these circumstances it is not a case for winding up in terms of Sections 433 and 434 of the Companies Act, 1956. The present petition is filed only to harass the respondent and bring down the reputation of the respondent-Company. It is also filed to pressurise the Company to extract the money which the Company is not liable and absolutely there are no bona fides on the part of the petitioner in filing the petition. Accordingly the respondent-Company prayed for the dismissal of the C.P In the additional affidavit filed in C.A No. 103/97 the respondent-Company stated that without prejudice to the contentions, to show the company's bona fides the respondent-Company is prepared to deposit to the credit of the company petition the principle amount claimed to be due by the respondent to the petitioner and on such deposit this Court may direct the petitioner to file a civil suit in a Civil Court to establish the claim within a particular time, this Court may prescribe.

3. As I have already noted above, in view of the submission made on both sides the main C.P No. 125/96 itself is taken up for disposal.

4. The learned Counsel Sri S. Ravi, appearing for the petitioner, contended that on the basis of the averments made in the C.P the petitioner has made out a case for winding up of the respondent-Company under Sections 433 and 434 and 439 of the Companies Act, 1956. The claim of the petitioner is based upon the MOU dated 25-9-1993 filed at Annexure I and it is ascertained debt and the respondent-Company is unable to pay the same in terms of Sections 433(e) and 434(c) of the Companies Act, 1956, since inspite of the statutory notice the respondent-Company has not paid the debt to the petitioner. In fact, in terms of Para 3(2) of the MOU the respondent-Company has paid Rs. 1,00,000/- out of Rs. 4,00,000/- as agreed to and settled under the MOU. Inspite of the statutory notice the respondent-Company has not paid the balance amount of Rs. 3,00,000/- in terms of the MOU dated 25-9-1993 the respondent-Company is liable to be wound up. He relied upon certain judgments of High Courts and the Supreme Court and I will be adverting to them later.

5. On the other hand the learned Counsel Sri E. Manohar appearing for the respondent-company submitted that the C.P in the present form is not maintainable. From the description of the cause title and affidavit it is not clear as to who has filed the present petition whether Sri G. Subba Rao has filed in his individual capacity or it is a petition filed by Neeth and Co. Sri G. Subba Rao also described himself as a Chartered Accountant for the petitioner, therefore, this petition is liable to be dismissed as not maintainable. He further submitted that assuming for the sake of the argument that there is a MOU vide Annexure-I and the same is between Sri G. Subba Rao, the petitioner, and Sri K.S.S Niranjan Rao in their personal capacities and it is not a MOU between Sri G. Subba Rao on one hand and the respondent-Company on the other. He further submitted that the alleged MOU is not a contract between the petitioner and the respondent-Company in view of Section 46 of the Companies Act, 1956. The said MOU is not signed by Sri K.S.S Niranjan Rao for and on behalf of the Company nor there was any authority for him to sign the said MOU. At any rate, when vide letter dated 19-1-1994 Sri K.S.S Niranjan Rao expressed his inability to implement the terms of the MOU, the petitioner by exerpising his right in terms of Clause 3.3 of the MOU revoked the MOU, by further directing the respondent-Company that Rs. 1,00,000/- paid by the respondent-Company by way of a cheque dated 29-9-1993 could be apportioned against his claim in Clause (1)(f) of the MOU. He further submitted that when the MOU itself has been cancelled by the petitioner he cannot base his claim on the same MOU.

6. Moreover vide his another letter dated 3-6-1996 the petitioner invoked Clause 8 of the MOU requesting Sri K.S.S Niranjan Rao to come forward for the settlement of the dues through the Arbitrators by requesting him to appoint any one of the Arbitrators mentioned therein in the said letter and from this it is clear that there is a dispute regarding the claim based on the MOU and as such the liability in question is not an admitted liability and on the basis of such MOU the respondent-company cannot be wound up. At any rate the alleged claim of the petitioner is barred by limitation. He submitted that having regard to the assets of the respondent-company it cannot be said that a case for winding up is made out in terms of Sections 433 and 434 of the Companies Act, 1956 and accordingly the C.P is liable to be dismissed. He also relied upon some of the judgments of the Honourable Apex Court which I will be referring in the course of the judgment.

7. First let me take up the preliminary objection raised by the respondent Counsel that the Company petition in the present form cannot be entertained in view of the fact that it is not clear as to who has filed the petition. The cause title shows that the petitioner Sri G. Subba Rao, Chartered Accountant of Neeth and Co. The affidavit sworn in support of the petition states that “I am the Chartered Accountant of the petitioner herein”. From the cause title it is seen that the petitioner is Mr. G. Subba Rao, whether the description as Chartered Accountant should be taken as the description of the petitioner Sri G. Subba Rao or whether he is representing Neeth and Co. in his capacity as the Chartered Accountant of Neeth and Co. is not clear. The affidavit filed in support of the C.P adds to the confusion when the very Sri G. Subba Rao describes himself as the Chartered Accountant of the petitioner herein. In these circumstances, it is difficult to decifer who exactly is the petitioner whether Neeth and Co. is the petitioner represented by Mr. G. Subba Rao as the Chartered Accountant or whether Sri G. Subba Rao himself, is the petitioner his description being a Chartered Accountant of Neeth and Co. In these circumstances, it is difficult to ascertain who exactly is the petitioner. On this count alone, I do not think it is possible to dismiss the C.P since as per the entire allegations made in the C.P it is clear that Sri G. Subba Rao in his individual capacity was entitled to certain amounts from the respondent-company towards the professional services rendered by him as per the allegations. Ultimately on the basis of the Memorandum of Settlement between himself, Sri K.S.S Niranjan Rao the amount due towards his professional services and other amounts due from the respondent-Company either to the wife of the petitioner, to or his HUF or even to Neeth and Co. the liability of the respondent-company has been crystalised at Rs. 4.00 lakhs. Thus, the petitioner Sri G. Subba Rao in his individual capacity is one of the creditors as per the MOU, dated 25-09-1993 filed in the material papers at Annexure-I. The object of Sections 433 and 434 of the Companies Act, 1956 is only to see whether a particular company is liable to be wound up on the ground that the company is unable to pay its debt. Thus, the proceedings under these sections are not the proceedings to recover debts due from any particular Company. Therefore for the limited purpose to find out whether the respondent-Company is liable to be wound up for being unable to pay its debts, I think this petition can be entertained.

8. The learned Counsel for the petitioner submitted that the claim of the petitioner-Company is based on MOU, dated 25-09-93. He further contended that this MOU is entered into between. Sri G. Subba Rao on one hand and Sri K.S.S Niranjan Rao representing the company on the other. On the other hand the learned Counsel for the respondent contended that from the contents of the MOU it is clear that the same has been agreed to between Sri G. Subba Rao in his individual capacity and Sri K.S.S Niranjan Rao in his individual capacity. He further submitted that from the contents of the entire MOU it cannot be gathered that the said MOU was agreed to, for and on behalf of the respondent-Company. Therefore, on the basis of this MOU the present petition itself cannot be maintained.

9. From the contentions on both sides it is clear that the existence of the MOU is not disputed. Therefore, what I have to find out is whether it was a settlement between two individuals or whether it was a settlement between Sri G. Subba Rao on one hand and the respondent-Company on the other. The preamble of the MOU states that “MOU reached between Sri G. Subba Rao, Chartered Accountant, Neeth and Co., Hyderabad and Sri K.S.S Niranjan Rao”. From the very description of the preamble it is clear that the settlement was reached between two individuals. The preamble does not describe Sri K.S.S Niranjan Rao as the Managing Director of the respondent-Company. It is also not stated in the MOU that Sri K.S.S Niranjan Rao represented the respondent-company. It is stated that Sri G. Subba Rao was the Director of the respondent-Company till the year 1993. In these circumstances, it is possible that these two persons wanted to settle certain disputes of the respondent-Company on the basis of this MOU, therefore, at the end of MOU both of them have signed with their individual name, not stating that they were representing any other Company or person. Moreover, the letter dated 19-1-1994 points to the effect that there must have been an understanding between them that such a settlement would be subject to further approval by the respondent-Company, because the said letter dated 19-1-1994 stated that the arrangement as per the MOU dated 25-9-1993 cannot be made unless the same is approved by the share-holders and the Government, under the provisions of the Companies Act, 1956. The said letter also further states that any payments made under that MOU have got to be kept informed to the Board of Directors by the concerned Director, at the appropriate time, by noting the same in some appropriate statutory registers, as per the enactment and since the said understanding violated these provisions of the Companies Act, 1956 Sri K.S.S Niranjan Rao was not in a position to implement the terms of the said arrangement. Accordingly he expressed his regrets. From this it follows that the settlement was not with the consent and for and on behalf of the respondent-company. However, Sri S. Ravi, the learned Counsel for the petitioner submitted that the letter dated 9-2-1994 indicates that the MOU was for and on behalf of the respondent-company because the tenure of the letter shows that the respondent-Company was not agreeable for the settlement arrived at. But, according to me on the basis of the said letter it can also be said that Sri G. Subba Rao and Sri K.S.S Niranjan Rao, taking the problem on themselves, tried to settle matter between the respondent-Company and some other creditors and also to see that the same is ratified and approved by the respondent-Company. From the said letter it is further clear that the MOU arrived at between Sri G. Subba Rao and Sri K.S.S Niranjan Rao ultimately has not been approved by the respondent-Company. But on a further probe into the matter another incidental issue also arises as to whether the respondent-Company is or is not bound by the actions of Sri K.S.S Niranjan Rao, who was the Managing Director of the respondent-Company. It is in this context the learned Counsel for the petitioner contended that, being a Managing Director Sri K.S.S Niranjan Rao had ‘the austensible authority’ so far as the third parties are concerned, to enter into a contract for and on behalf of the respondent-Company. For this proposition of law he relied upon the judgment of the Court of Appeal reported in Freeman and Lockyer v. B.P Properties (Mongol) Ltd., 1964 (34) Comp. Cases 405. From the reading of the said judgment it is clear that the Court was analysing the relationship between the agent and the master with reference to contract in relation to a third party. The Court held that in case of the legal entitles like Corporations, they can act only through their agents and the Court further rules that:

“that in order to create an estoppel between the corporation and the contractor, the representation as to the authority of the agent which creates his “apparent” authority must be made by some person or persons who have “actual” authority from the corporation to make the representation. Such “actual” authority may be conferred by the constitution of the corporation itself, as, for example, in the case of company, upon the board of directors, or it may be conferred by those who under its constitution have the powers of management upon some other person to whom the constitution permits them to delegate authority to make representations of this kind. It follows that where the agent upon whose “apparent” authority the contractor relies has no “actual” authority from the Corporation to enter into a particular kind of contract with the contractor on behalf of the Corporation, the contractor cannot rely upon the agent's own representation as to his actual authority. He can rely only upon a representation by a person or persons who have actual authority to manage or conduct that part of the business of the corporation to which the contract relates.”

10. From the above judgment it is clear that if the agent having an apparent authority in fact had no actual authority at all, the third party cannot rely on such apparent authority. Therefore, it is necessary to find out in any given case whether the person who made the representation for and on behalf of the Corporation had in fact “actual authority’ either in terms of the provisions of the Constitution of that Corporation or by virtue of the delegation to such an agent by the Board of Directors. In the instant case it is not in dispute that Sri K.S.S Niranjan Rao was the Managing Director of the respondent-company. Clause 26 of Section 2 of the Companies Act, 1956 defines the Managing Director as under:

“(26) “Managing Director” means a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of Directors or, by virtue of its Memorandum or Articles of Association, is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a director occupying the position of a Managing Director, by whatever name called:

Provided that the power to do administrative of a routine nature when so authorised by the Board such as the power to affix the common seal of the company to any document or to draw and endorse any cheque on the account of the company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registration of transfer of any share, shall not be deemed to be included within substantial powers of management;

Provided further that a Managing Director of a company shall exercise his powers subject to the superintendence, control and direction of its Board of Directors.

11. From this definition of the Managing Director given by the Companies Act, 1956 it is clear that the Managing Director may derive his “substantial powers of management” to act for and on behalf of the company on the basis of an agreement or by virtue of resolution passed in the general meeting or by way of resolution passed by the Board of Directors or by virtue of the Memorandum of Articles of Association of the company. The definition further makes it clear that, such substantial power, the Manager otherwise would not have, unless it is on the basis of one of the modes provided in the definition. The definition further provides that such substantial power of Management would include the power to do administrative acts of routine nature, but such power cannot take within its fold “the power to fix the common seal of the company to any document or to draw and endorse any cheque on the account of the company in any Bank or to draw and to endorse any negotiable instrument or to sign any certificate of share or to direct the registration of transfer of any share”. The second proviso adds a further rider that the Managing Director shall exercise his powers “subject to the superintendence, control and direction of its Board of Directors”. From the definition, it is clear that the Managing Director as an agent of the company does not have all the powers to act for and on behalf of the company. From this definition it can be safely concluded in this case that Sri K.S.S Niranjan Rao as Managing Director did not have the actual authority or power to fix the common seal of the company to any document by arriving on any kind of settlement for and on behalf of the company. In the light of the judgment of the Court of appeal referred to above vide (supra) and I hold that he had no “actual” authority or power to act for and on behalf of the Company. The letter dated 19-01-1994 has only reiterated this legal position on behalf of the respondent-Company. I pause for a moment at this stage only to hold that the MOU dated 25-09-93 entered into between Sri G. Subba Rao and Sri K.S.S Niranjan Rao was not for and on behalf of the respondent-Company, nor it is a valid deed in terms of Section 48 of the Act, so as to bind R-Co.

12. The learned Counsel Sri E. Manohar appearing for the respondent-Company further submitted that, assuming for the sake of the argument that this MOU in question was arrived at for and on behalf of the respondent-Company but the same is not in existence with effect from 9-2-1994. To butteress this point he relied upon the letter written by Sri G. Subba Rao dated 9-2-1994. From the reading of two letters dated 19-1-1994 and the letter dated 9-2-94 which are admitted by both the parties it is clear that there is substance in the argument of the learned Counsel for the respondent-Company. For, vide letter dated 19-1.-1994 Sri K.S.S Niranjan Rao recorded his inability to implement the MOU on certain legal issues. Sri G. Subba Rao, being himself a Chartered Accountant, perhaps understanding the correct legal position, wrote the letter dated 9-2-1994 by invoking his power or right reserved in Clause 3.3 of the MOU, by restoring “all rights and claims inclusive of resignation to the Board of Directors”. In the same letter he issued a further direction that an amount of Rs. 1,00,000/- paid by the respondent-Company by way of cheque dated 29-9-93 may be appropriated against his claim in Clause (1)(f) of the MOU dated 25-9-93. In order to fully appreciate the legal consequences of this letter I am extracting Clauses 3.2, 3.3 and 4.0 of the MOU as under:

3.2 It was agreed that the amount of Rs. 4.0 lakhs which was agreed as full and final settlement will be paid by Sri K.S.S Niranjan Rao/Rasmi Die Castings Limited in four equal instalments of Rs. 1,00,000/- each as stated hereinunder:

-1st instalment of Rs. 1,00,000/- on or before 29-9-93.

-2nd instalment of Rs. 1,00,000/- on or before 31-12-93.

-3rd instalment of Rs. 1,00,000/- on or before 30-6-94.

-4th instalment of Rs. 1,00,000/- on or before 31-12-1994.

3.3 Sri G. Subba Rao has agreed for the above instalment payments. He also agreed that no interest will be paid on the amounts if the payments are made as per the above schedule. If the instalment payments are not paid as above both the parties have agreed, that interest is payable from the due date till the date of payment at 18% per annum. It was agreed by Sri K.S.S Niranjan Rao that he would give post-dated cheques for the above instalment payments and the same was agreed by Sri G. Subba Rao. In case Sri K.S.S Niranjan Rao fails to pay any instalments either in part or full Sri G. Subba Rao will be entitled to restore his rights on the claims mentioned in 1.0 above.

4.0 In settlement of the above, it was further agreed by both the parties as follows:

1. That Sri G. Subba Rao will resign from Board of Directors of Rasmi Die Castings Limited on the date of 1st instalment so as to enable Sri K.S.S Niranjan Rao to withdraw guarantee signed by Sri G. Subba Rao favouring the financial institutions during the course of promotion of the company and he will not continue on the Board on acceptance of release of personal guarantees given to the Institutions.

2. That Sri G. Subba Rao will not make any claim/s against Rasmi Die Castings Limited of Sri K.S.S Niranjan Rao in future on account of any known or unknown liability and he will issue necessary receipl/s having received the payments.

3. That all the correspondence which Sri G. Subba Rao has written to the Company or to Sri K.S.S Niranjan Rao during his tenure as Director of the company is seemed to have been withdrawn and he assured that he will not make any adverse publicity about the company.

4. That Sri G. Subba Rao will also ensure issuance of letters regarding the settlement in respect of all/full claims made on his behalf his wife Neeth and Company and Navaneeth and Co. All the legal notices issued on various dates are also withdrawn and are not binding.

5. That the amount of Rs. 1,08,000/- invested as equity by Sri G. Subba Rao will be adjusted against the last instalment of Rs. 1,00,000/- payable in the month of December, 1994 and Sri G. Subba Rao will execute and handover a blank transfer deed and deposit with Sri V.S Rao, Secretary, Godavari Fertilizers and Chemicals Limited, Secunderabad on 25th September, 1993.

6. That on settlement of the share amount Sri G. Subba Rao will not be entitled to continue as share-holder or he will not hold any shares in future so far the company remains unlisted.

7. That so far as the equity of Rs. 1,08,000/- remains in the name of Sri G. Subba Rao. Rasmi Die Castings Limited has agreed to pay dividend to him as declared from time to time.

8. In case of any dispute or difference arise regarding operation of these terms and conditions both the parties have also agreed to refer the matters to a mutually agreed Mediator/Arbitrator and his decision shall be final and binding on the both the parties.

13. From the reading of these clauses the fact that emerges is that as per the MOU the respondent-company is permitted to pay the amount of Rs. 4,00,000/- settled, in four instalments, and in case of failure to pay the instalments, the amounts due are chargeable with interest at the rate of 18%. Clause 3.3 specifically provided that towards the discharge of these debts Sri K.S.S Niranjan Rao should issue four post dated cheques in respect of each instalment and “in case Sri K.S.S Niranjan Rao fails to pay any instalment either in part or full Sri G. Subba Rao will be entitled to restore his rights on the claims mentioned in 1.0 above”. According to the case of the petitioner himself the respondent-company paid Rs. 1,00,000/- by way of cheque dated 29-9-1993 and further instalments were not paid nor any post-dated cheques were issued by Sri K.S.S Niranjan Rao as agreed to under Clause 3.3 of the MOU. In such circumstances, when Sri K.S.S Niranjan Rao wrote the letter dated 19-1-1994 expressing his inability to honour MOU Sri G. Subba Rao by letter dated 9-2-1994 restored his right as to the claims mentioned under Clause 1.0 of the MOU, including his right of commission under Clause 1(f) of the MOU. The further direction, issued, in letter dated 9-2-1994, that Rs. 1,00,000/- paid by way of cheque dated 29-9-93 may be appropriated for certain purposes, makes the position clear that Sri G. Subba Rao resiled or cancelled the MOU. Therefore, from this it follows that on the basis of the letter dated 9-2-1994 the arrangement made in MOU has not been in existence since the year 1994 itself. Therefore, the contention of the learned Counsel for the petitioner that in view of subsequent letter dated 3-6-96 issued by Sri G. Subba Rao indicates that the MOU still subsists cannot be accepted. May be in the year 1996 Sri G. Subba Rao might have been advised to write the letter dated 3-6-96 proposing to refer the matter to arbitration under Clause 8 of the MOU but the fact remains that the said MOU was not in existence with effect from 9-2-1994. Therefore, the said letter dated 3-6-96 has absolutely no legal effect and it cannot be taken into account to hold that the MOU was subsisting on the date of the letter dated 3-6-96.

14. With this back ground I now proceed to consider the argument of the learned Counsel for the respondent-company that this company petition filed for winding up under Sections 433 and 434 of the Companies Act, 1956 cannot be entertained because it is not based on any admitted and crystalised debt. Both the Counsel did not dispute the proposition of law that in terms of Clause (e) of the Section 433 for the purpose of ordering a winding up, the “debt” which the company is “unable to pay” must be a determined or definite sum. In other words such a debt should not be a disputed or doubtful amount. Moreover, this preposition of law, the learned Counsel on both sides, rightly, did not dispute it in view of the ruling of the Supreme Court in Pradeshiya Industrial and Investment Corporation of U.P v. North India Petrochemicals Ltd., (1994) 3 SCC 348. Therefore, now what I have to find out in this case is whether the respondent-company in question is unable to pay a definite determined debt. To show that the C.P is based on a definite determined debt the learned Counsel for the petitioner relies upon the MOU in which all the claims were settled at Rs. 4,00,000/-. If the MOU were to be in existence definitely there would be a determinate sum in order to find out whether the respondent-company is unable to pay the same. But, as I have already stated above, the said MOU has been cancelled by Sri G. Subba Rao, vide his letter dated 9-2-1994 by restoring his rights in terms of Clause 3.3 of the MOU. Clause 3.3 of the MOU which I have already extracted above, stated that Sri G. Subba Rao would be entitled to restore his rights on the claims mentioned in Clause 1.0 of the MOU. From the reading of Clause 1.0 it is clear that so many claims are made by Sri G. Subba Rao which are denied by Sri K.S.S Niranjan Rao under Clauses 2.0 to 2.2 of the MOU. From the reading of Clauses 1.0 to 3.0 it is clear that there is a claim on one side and denial on the other. From this it follows that after the cancellation of the MOU what remain was only certain disputed claims. Such disputed claims found at Clauses 1.0 to 2.2 of the MOU cannot be said to be determined debt as per the law declared by the Honourable Supreme Court vide (supra), which squarely applies to the facts of this case. In that case also a C.P was filed on the basis of an agreement (MOU in this case) which was subsequently cancelled and after such cancellation of that agreement there was no relationship of creditor and debtor between the appellant and the first respondent. In similar situation only the Supreme Court vide (supra) held that after the cancellation of the earlier agreement there would not be determined, undisputed, definite sum, for the purpose of finding out whether the “company is unable to pay its debts” in terms of Section 433(e). In the light of the above law declared by the Honourable Supreme Court and in view of my conclusions as arrived at, above that there is no determined and definite debt which the respondent is unable to pay, after the cancellation of the MOU in the year 1994, this C.P has to fail.

15. It is to be noted at this stage itself that the State Bank of India as a creditor has filed a counter affidavit opposing the C.P as a third party. In the affidavit it states as under:

“I submit this third party creditor Bank to the respondent-company sanctioned total limits of the aggregate sum of Rs. 3,90,00,000/- and are availed by the respondent-company. This third party creditor Bank sanctioned enhanced limits aggregating to Rs. 6,20,00,000/- and the balance sum is awaiting release to the respondent company I submit this third party creditor Bank submitted as above has considerable stake in the respondent-company against which the petitioner filed the application for winding up. I submit the purported claim of the petitioner against the respondent company is not a crystalised debt and is meagre when compared to the credit facilities sanctioned by the creditors to the company amongst which this third party Bank has already sanctioned limits for Rs. 3,90,00,000.00 and sanctioned enhancement to an aggregate limit of Rs. 6,20,00,000.00 and any impediment in the functioning of the respondent-company without a just cause would expose this third party creditor Bank and other secured creditors to the risk of the lending of the creditors in the respondent-company.”

16. From this affidavit also it is clear that the State Bank of India is one of the creditors of the respondent-company by lending huge sum of Rs. 6,20,00,000/-. The affidavit further states that the winding up of the respondent-company only for the sake of Rs. 3,00,000/- claimed by the petitioner would not be reasonable. It also states that the said amount of Rs. 3,00,000/- is a disputed amount. In my opinion, on the basis of this affidavit of the State Bank of India, and also from the balance sheet of the respondent company as on 31-3-94 and 31-5-95, the financial position of the respondent-company is sound, having regard to its assets and liabilities (The two annual reports for the respective years perused by me are in the material papers).

17. Having regard to my above conclusions, the other points (1) whether the debt mentioned in MOU was time barred or not and (2) whether the arbitration clause comes in the way of this Court for taking decision in terms of Sections 433 and 434 of the Companies Act, 1956 or not, would not survive. When the MOU itself is cancelled the same cannot be relied upon for contending that the debts are barred by time or there is any arbitration clause in the said MOU. Consequently the judgment cited by the learned Counsel for the petitioner in this behalf also would not survive for my consideration. For the above reasons, I have to hold that absolutely there are no merits in the C.P and the same is liable to be dismissed. However, the interest of the petitioner-company would be amply safeguarded if I direct the respondent-company to deposit an amount of Rs. 3,00,000/- to the credit of the C.P in the event the petitioner company filing any suit or any other proceedings to recover their alleged debts from the respondent- company before the competent Court or authority. In fact, the affidavit of the respondent-company dated 12-3-97 filed in support of the C.A No. 103/97 has agreed to this kind of agreement in Para (4) which reads as under:

“4. Without prejudice to the contentions, to show the company's bona fide, applicant company is prepared to deposit to the credit of the Company Petition No. 125 of 1996 the principal amount claimed to be due to the respondent petitioner or such other amount as this Honourable Court may direct and the respondent herein the petitioner in the main petition be directed to file a civil suit in a Civil Court to establish the claim within a time period that may be prescribed by this Honourable Court.”

18. For the above reasons, I pass the order as under:

The company petition is dismissed but in the circumstances without costs. Consequently C.A No. 103/97 and C.A No. 221 of 1997 are dismissed. The respondent-company is directed to deposit an amount of Rs. 3,00,000/- (Rupees Three lakhs) within a period of two weeks from today to the credit of the company petition. In the event of the petitioner-company initiating any legal proceedings against the respondent-company within a period of two months from today the said amount shall be deposited in a scheduled Bank, awaiting the final result of such proceedings and in case such proceedings are not initiated with due registered notice to the respondent-company, within a period of two months from today, the respondent company would be entitled to withdraw the same.