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Mittal Iron Foundry (P) Ltd. v. Elektro Flame Limited

Andhra Pradesh High Court

Aug 13, 1999

Judgment

Subsequent
References

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Structured Summary of the Opinion

Factual and Procedural Background

The petitioner-company filed an application under Section 433(e) and (f) of the Indian Companies Act, 1956 seeking winding up of the respondent-company. Pursuant to a purchase order dated 25.7.1992, the petitioner supplied cast iron castings by invoices dated 11.8.1992 and 20.8.1992 for amounts of Rs. 98,268.77 and Rs. 1,32,939.46 respectively, total Rs. 2,31,208.23. The goods were acknowledged received by the respondent-company (acknowledgements dated 25.8.1992, acknowledged on 15.8.1992 in delivery), and the invoices contained an agreed term that interest at 24% per annum would be payable if payment was not made within 90 days.

The petitioner claimed that despite reminders and notices (statutory notices dated 28.7.1995 and 27.8.1996), the respondent did not pay; the respondent had acknowledged liability in letters dated 31.3.1993 and 31.3.1994 and had delivered 'C' Forms in March 1995. By 31.3.1995 the petitioner asserted the respondent owed Rs. 3,62,837.23 (including interest). The respondent denied the claims, disputed the interest term, contended the goods were defective, pleaded limitation and alleged the acknowledgements were false or made by an unauthorised person.

On admission, the petition was admitted on 10.11.1997 and advertised. The respondent appealed the admission order in O.S.A. No.1/98; the Division Bench dismissed the appeal on 9.2.1998 (reported as Electro Flame Limited v. Mittal Iron Foundry (DB)). Evidence was led by the petitioner (affidavit and PW-1 Ramjilal Agarwal), cross-examination occurred on 28.1.1999, and no rebuttal evidence was adduced by the respondent.

Legal Issues Presented

Whether the respondent-company is commercially insolvent so as to justify winding up under Sections 433(e) and (f) of the Indian Companies Act, 1956.
Whether the petitioner's claim is barred by limitation, given purported acknowledgements and delivery of 'C' Forms.
Whether the respondent-company validly acknowledged liability (including confirmations dated 31.3.1993 and 31.3.1994) and whether those acknowledgements and delivery of 'C' Forms establish a jural relationship that defeats the limitation plea.
Whether the goods supplied were defective (as alleged by the respondent), and whether that allegation, if accepted, would defeat the petitioner's claim.
Whether the person who signed acknowledgements and handed over 'C' Forms (Sri J. Venkateswarlu) was authorised such that those documents bind the respondent-company.

Arguments of the Parties

Petitioner-company's Arguments

Petitioner supplied goods on credit under purchase order and invoices totalling Rs. 2,31,208.23; delivery and acknowledgements were received from the respondent.
Invoices and purchase order contained a clause for 24% p.a. interest on delayed payments after 90 days; thus interest is owed.
Respondent acknowledged liability by letters dated 31.3.1993 and 31.3.1994, and delivered 'C' Forms (March 1995), establishing the debt and preventing a limitation defence.
Respondent failed to respond to statutory notices and has not filed annual accounts with the Registrar of Companies, incurred heavy debts and is commercially insolvent—winding up is justified.

Respondent-company's Arguments

Denied agreement to pay interest at 24% or at any rate.
Pleaded the claim is barred by limitation.
Contended that acknowledgements or balance confirmations are false and incorrect and that neither the company nor any authorised representative acknowledged the liability claimed.
Admitted supply but alleged the goods were extremely defective, rough, hard and brittle, and unusable for manufacturing—seeking to defeat the claim.
Asserted that the signatory Sri J. Venkateswarlu was authorised only for excise dealings at the factory site and not to acknowledge debts or hand over 'C' Forms; therefore, such documents do not bind the company.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Electro Flame Limited v. Mittal Iron Foundry (DB)	That furnishing sales-tax declaration forms ('C' Forms) in respect of the same transaction and confirmations of account balances admit existence of a jural relationship between parties and that such confirmations preclude a limitation defence.	The court relied on this authority to hold that the respondent's delivery of 'C' Forms and balance confirmations established a creditor–debtor relationship as late as March 1995 and that the plea of limitation could not be sustained; the Division Bench in that case had dismissed a similar limitation plea.
S.F. Mazda v. Durga Prasad	Used to support the significance of 'C' Forms as evidence admitting a jural relationship relevant to limitation questions.	The court relied on this precedent (via the Electro Flame decision) to reinforce that 'C' Forms and related confirmations negate the respondent's limitation argument.
Electro Flame Ltd. v. Mittal Iron Foundry Pvt. Ltd. (1998) 3 Comp LJ 464 (AP)	Authority for the proposition that balance confirmations by a debtor-company, even when certified by a stamp or initials, prevent the claim from being barred by limitation.	The court referred to this reported decision to conclude that the Division Bench had not accepted the respondent's limitation plea and to support the finding that limitation did not apply in the present matter.

Court's Reasoning and Analysis

The court's analysis proceeded by examining documentary evidence and the unchallenged testimony of the petitioner's witness, Ramjilal Agarwal (PW-1), and by applying the legal principles established in the cited precedents.

Key steps in the court's reasoning:

Acceptance of documentary proof: The court found that invoices (Exhs. A-1 and A-3), delivery acknowledgements (Exhs. A-2 and A-4), confirmations and notices (Exhs. P-5 to P-11), and the 'C' Forms (Exhs. A-12 and A-13) were established on the record. PW-1's evidence on these points was admitted in the respondent's counter and not successfully challenged in cross-examination.
Interest clause: PW-1 stated that the 24% p.a. interest clause was part of the invoices and the purchase order; the court found this established and that the respondent had agreed to pay interest for delayed payment.
Rejection of defect allegation: PW-1 denied that the goods were defective; because the respondent did not adduce any rebuttal evidence, the court found there was no evidence to support the respondent's allegation that the goods were defective and thus accepted that the goods were not defective.
Acknowledgements and 'C' Forms as evidence against limitation: The court relied on precedent (Electro Flame and S.F. Mazda) to treat the delivery of 'C' Forms and the written acknowledgements (31.3.1993 and 31.3.1994) as significant acts admitting a jural relationship and confirming account balances, thereby defeating the limitation defence.
Authorisation issue addressed: Although PW-1 conceded he did not verify whether J. Venkateswarlu was duly authorised to acknowledge the debt or hand over the 'C' Forms, the court observed that it was not disputed that 'C' Forms were issued by the respondent-company. On that basis and in light of the prior Division Bench decision, the court concluded it could not be said that Venkateswarlu was not authorised to acknowledge the liability on behalf of the respondent-company.
Commercial insolvency: The court noted unchallenged testimony that the respondent had failed to file annual statements and balance sheets for three years, had incurred heavy debts, and was heavily indebted to other creditors. From these facts the court concluded the respondent-company had become commercially insolvent.

Having applied these findings and the cited legal principles, the court concluded the requisites for winding up under the Companies Act were satisfied.

Holding and Implications

Holding: The application for winding up is allowed and the respondent-company is ordered to be wound up under the provisions of the Indian Companies Act.

Direct consequences and orders made by the court (as stated in the opinion):

The official liquidator is directed to take charge of all the property and effects of the company forthwith.
The official liquidator shall cause a sealed copy of the judgment to be served on the company by prepaid registered post.
The petitioner-company is ordered to advertise the notice in the "Deccan Chronicle" and "Andhra Jyothi" newspapers within fourteen days and to serve a certified copy of the order on the Registrar of Companies within one month of receipt of the order.
The costs of the petition are to be taxed and paid out of the assets of the company.
The petitioner-company must deposit Rs. 10,000 (rupees ten thousand only) within three weeks with the official liquidator to meet initial expenditure.
Costs as incurred.

Broader implications: The opinion relies on existing precedents to resolve limitation and evidentiary issues but does not purport to establish a new legal precedent; the decision's immediate effect is the winding up order and the procedural consequences set out above.

Show all summary ...

1. This is an application filed under Section 433(e) and (f) of the Indian Companies Act, 1956, for winding up the respondent-company.

2. The case of the petitioner-company in brief is that in pursuance of the purchase order, dated 25.7.1992, the petitioner-company supplied C.I. castings fan body, bottom rovers, etc., through invoice, dated 11.8.1992. The prices 0f the goods supplied on credit was Rs. 98,268.77 and Rs. 1,32,939.46 respectively, totalling to Rs. 2,31,208.23. The goods sold on credit were received by the respondent-company on. 15.8.1992 vide the acknowledgement signed by the authorised signatory of the respondent-company, dated 25.8.1992. It was agreed that if the payment of the bill not being made within (90) days therefrom the petitioner-company shall be entitled to claim interest at the rate of 24% per annum. In answer to reminders for payment of the goods sold on credit, the respondent-company acknowledged the liability to pay through letters, dated 31.3.1993 and 31.3.1994. The respondent-company was liable to pay an amount of Rs. 3,62,837.23 with interest as on 31.3.1995. The respondent-company has also delivered 'C' Forms in the month of March, 1995. In spite of statutory notice, dated 28.7.1995 and 27.8.1996, the respondent-company did not pay the amount. The respondent-company has become commercially insolvent and, therefore, it should be ordered to be wound up.

3. The respondent-company through its counter has denied the claim of the petitioner-company. It has denied the agreement to pay interest at the rate of 24% per annum or at any other rate. The respondent-company pleaded that the claim made in the petition is barred by limitation. It has also pleaded that acknowledgements or balance confirmations are false and incorrect neither the respondent-company nor any its authorised representative had acknowledged the liability to pay the amounts claimed by the petitioner-company. While admitting that the petitioner-company had supplied material on 11.8.1992 and 20.8.1992, it has alleged that the goods supplied were extremely defective, castings were found to be rough, hard and brittle and unusable for manufacturing purposes. The respondent-company has admitted not to have replied both the notices received by it. The respondent-company has denied that it has become commercially insolvent. It is specifically stated in the counter that the authorised signatory, Sri J. Venkateswarlu, was the employee of the respondent-company at the factory site and was authorised to sign in relation to the excise dealings only at the factory. It is pleaded that the company petition is liable to be dismissed.

4. After hearing both the parties to the petition on admission, the petition has been admitted on 10.11.1997 and it has been duly advertised in newspapers.

5. The respondent-company had challenged the order of admission in O.S.A. No. 1/98, but the Division Bench has dismissed the appeal on 9.2.1998, The case is reported in Electro Flame Limited v. Mittal Iron Foundry (P) Ltd. (DB). Since no representation was subsequently made by the respondent-company, affidavit was sought to be filed in lieu of evidence. Thereafter, Sri Ramjilal Agarwal has filed his affidavit in lieu of his evidence. Then representation was made on behalf of the respondent-company and Ramjilal Agarwal-PW-1 was cross-examined on 28.1.1999.

6. From the evidence of Ramjilal Agarwal-PW-1, it is established that the petitioner-company had supplied C.I. castings fan body, bottom covers, etc., through invoice, dated 11.8.1992 and 20.8.1992 under two separate bills for Rs. 98,268.11 and Rs. 1,32.939.46, respectively, totalling to Rs. 2,31.208.23 the invoices are at Exhs: A-1 and A-3. The goods were sold on, credit and delivered to the respondent-company on 25.8.1992 and the authorised signatory of the respondent-company had issued the acknowledgements which are at Exhs. A-2 and A-4. It is pertinent to note that the respondent-company has admitted this fact in its counter and the statement of Sri Ramjilal Agarwal, PW-1, has not been challenged in cross-examination.

7. Ramjilal Agarwal, PW-1, has further deposed that as per the terms and conditions of the supplies, the respondent-company was liable to pay interest at the rate of 24% per annum, because it had failed to make the payment, within (90) days therefrom. In cross-examination, he has stated that the clause of interest has been incorporated in the invoices as also in the purchase order of the respondent-company. Thus, it is established that the respondent-company had agreed to pay interest at, the rate of 24% per annum for delayed payment.

8. In cross-examination, Ramjilal Agarwal, PW-1, has denied that the goods supplied on credit were defective. There is no evidence in rebuttal. Therefore, I find that the goods supplied on credit to the respondent company were not at all defective material.

9. Sri Ramjilal Agarwal, PW-1, testified that on 31.3.93 and again on 31.3.1994, the respondent-company had acknowledged in writing its liability to pay the debt. He has further stated on oath that as on 31.3.1995, the respondent-company was liable to pay an amount of Rs. 3,62.835.23 including interest. The documents evidencing confirmation of the statement of accounts are at Exhs. P-5, P-6 and at Exh. P-7. Copies of notices are at Exh. A-8 and at Exh. A-9, Postal acknowledgements are at Exhs. P-10 and P-11. He has also stated on oath that the respondent company had handed over 'C' Forms on 10.5.1996, which are at Exhs. A-12 and A-13. He had made enquiries with the Registrar of Companies and it has been found that the respondent-company has not submitted annual statements and balance sheets for the last three years and had incurred heavy debts in the market and that the financial status of the respondent-company is weak. Thus, in has become commercially insolvent.

10. In cross-examination, Ramjilal Agarwal, PW-1, has stated that he does not know whether the acknowledgement of liability to pay the outstanding dues was made by the authorised person of the respondent-company or not because when he approached the concerned person, the respondent-company had issued the letter acknowledging the debt by signing it and putting the seal of the respondent-company. He has denied to have received the 'C' Forms from some unauthorised person of the respondent-company and forcibly. He did not verify whether Sri J. Venkateswarlu was duly authorised or not by the respondent-company to acknowledge the debt and to hand over the 'C' Forms. It is noteworthy that the respondent-company did not adduce any evidence in rebuttal. Non-verification about the authorisation of Sri J. Venkateswarlu is consequential for the reasons stated in the subsequent paragraphs.

11. This court in Electro Flame Limited v. Mittal Iron Foundry (P) Ltd. (DB) relying on the case of S.F. Mazda v. Durga Prasad held that furnishing sales-tax declaration forms by way of 'C' Form in respect of the self-same transaction to the petitioner-creditor is a significant element in itself inasmuch as the same admit of the existence of a jural relationship between the parties and, therefore, the plea of limitation cannot be sustained. It has been further observed in this case that statements of balance of accounts were confirmed by the debtor-company for the years 1993, 1994 and 1995. These confirmation letters were certified by putting a rubber stamp of the debtor-company with an initial thereon and by reason of such a balance confirmation, question of the claim being barred by the laws of limitation does not and cannot arise. The plea taken by respondent-company is that of confession and avoidance. While admitting that the person who had signed on the acknowledgements of liability, dated 31.3.1993 and 31.3.1994, namely, J. Venkateswarlu, was duly authorised to give an acknowledgement in spite of the Excise Department, has contended that he was not authorised to acknowledge the debt and to hand over the 'C' Forms. Whether he was authorised to deliver the 'C' Forms or not is inconsequential because it is not disputed before me that 'C Forms were issued by the respondent-company. As noted above, that creates jural, relationship of creditor and debtor, i.e., between the petitioner and the respondent-company as late as in the month of March 1995.

12. For the foregoing reasons, it cannot be said that the said Venkateswarlu was not authorised to acknowledge the liability on behalf of the respondent-company. The question of limitation does not arise for the reason that the Division Bench of this court in Electro Flame Ltd. v. Mittal Iron Foundry Pvt. Ltd. (1998) 3 Comp LJ 464 (AP), supra, has not accepted the plea of the respondent-company that the claim is barred by limitation.

13. There is unchallenged testimony of Ramjilal Agarwal, PW-1, on record that the respondent-company did not submit the annual statements of accounts before the Registrar of Companies as also the balance sheets for three years and, it has been heavily indebted to other creditors also. Therefore, it can be safely inferred that the respondent company has become commercially insolvent.

14. In result, the application is allowed. It is ordered that the respondent-company be wound up under the provisions of the Indian Companies Act.

15. The official liquidator shall forthwith take charge of all the property and effects of the company. The official liquidator shall cause a sealed copy of this judgment to be served on the companies by pre-paid registered post. The petitioner-company shall advertise the notice in 'Deccan Chronicle' and 'Andhra Jyothi' newspapers within fourteen days and shall also serve a certified copy of the order on the Registrar of Companies not later than one month from the date of receipt of a copy of this order and the costs of the said petition be taxed and paid out of the assets of the company. The petitioner-company shall also deposit Rs. 10,000 (rupees ten thousand only) within a period of three weeks with the official liquidator to meet the initial expenditure. Costs as incurred.