Citation Codes

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Case Number

CP No. 76 of 2002 & CAs 254-255/2002

Advocates

Mr. Manish Lamba, Advocate for the Petitioner.
Mr. Harish Malhotra, Advocate for the Respondent.

Judges

Vikramajit Sen, J.

Acts

Section 433(1 )(e) and (f) of the Companies Act
SECTION 434 COMPANIES ACT

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Smart Summary

Structured Summary of the Opinion — Vikramajit Sen, J.

Factual and Procedural Background

This is a winding-up petition filed under Section 433(1)(e) and (f) of the Companies Act by a supplier (the Petitioner) against a company (the Respondent). The Petitioner alleges supplies of steel were made to the Respondent on various dates (details in para 6 of the petition) with the last supply dated 22.6.2001 and claims an outstanding sum of Rs. 40,89,948/-. It is undisputed that "C" Forms were supplied by the Company for supplies made from 12.10.2000 to 27.3.2001, but many of those forms were issued after 27.6.2001 (bulk on 11.7.2001). "C" Forms were not issued for the last five consignments covered by invoices dated 5.4.2001, 21.5.2001, 31.5.2001, 8.6.2001 and 22.6.2001. The Petitioner says the "C" Forms do not exactly match invoice values because the Company made deductions for short weighments.

The Petitioner sent repeated written demands (including letters dated 16.6.2001, 3.7.2001 and 10.9.2001) and ultimately issued a Statutory Notice under Section 434 of the Companies Act dated 19.11.2001 claiming Rs. 40,89,948/- with interest at 24% p.a. The Company remained silent; a further demand by the Petitioner dated 31.12.2001 also went unanswered.

The petition was filed on 26.2.2002; notice was issued pursuant to orders dated 27.2.2002 and court notice was served on the Company on 1.3.2002. The Company's letter dated 22.2.2002 reached the Petitioner on 5.3.2002. The Petitioner's Rejoinder contains specific averments and the copy of the Rejoinder was served on counsel for the Company on 15.7.2002.

Legal Issues Presented

Whether the company should be wound up on the ground that it has not paid the sum claimed by the Petitioner and is thereby commercially insolvent or in default.
Whether the defence asserted by the Company (including reliance on Minutes of Meeting of 7.5.2001, claimed discounts/set-offs, and debit notes) constitutes a bona fide and substantial dispute sufficient to defeat the winding-up petition.
Whether, given the circumstances and authorities on summary treatment in winding-up petitions, the Court should order the Company to deposit the disputed amount with the Registrar pending further proceedings.

Arguments of the Parties

Petitioner's Arguments

The Petitioner supplied steel to the Respondent on various dates and claims Rs. 40,89,948 is outstanding.
Repeated written demands and a statutory notice under Section 434 were ignored by the Company.
"C" Forms were furnished for prior transactions; lack of contemporaneous objections suggests the debt is undisputed.
The Company's letter dated 22.2.2002 appears to be pre-dated and therefore the defence was formulated after receipt of the court notice (Petitioner received that letter by Registered A.D. on 5th and 6th March, 2002 and alleged the envelope shows it was written after receiving the court notice on 1.3.2002).
The Company failed to respond to repeated communications, indicating mala fides and that the defence is an afterthought.

Respondent Company's Arguments

The Company is solvent; there is no doubt as to its solvency.
There was a material concealment by the Petitioner because Annexure R-1 (Minutes of Meeting dated 7.5.2001) was neither filed nor adverted to in the Petition; those Minutes record agreed discounts and other adjustments.
If the discounts recorded in the Minutes are given effect to, no amount would be due; alternatively, only Rs. 12,68,270.66 would be payable as per Annexure R-2 to the Reply (the opinion records this figure as "Rs. 12,68,270.66").
The Company contends that debit notes issued from time to time were in implementation of the agreement on 7.5.2001 and should reduce the petitioned claim; those debit notes were not mentioned prior to the Reply.
Learned Counsel argued that because the Company is solvent and has raised a dispute as to accounts, the petitioner should be relegated to a civil suit rather than winding-up proceedings.
The opinion also records, separately, that it was conceded by the Respondent that a sum of "Rs. 12,668,270.66" only has been shown as a contingent liability in the Company's Balance-Sheet (the opinion contains this distinct numeric statement).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro-Chemical Ltd. and Another, (1994) 2 Comp U 50 (SC)	Encapsulation of the scope of inquiry in winding-up petitions, including (i) inability to wind-up if bona fide substantial dispute exists, (ii) court will not accept defence that company can pay but chooses not to, (iii) rejection where defence is in good faith and prima facie likely to succeed, (iv) consideration of creditors' wishes, (v) winding-up machinery not to be used merely to realise debts.	The Court applied these considerations as the guiding framework for deciding whether the defence was bonafide and substantial or merely an afterthought; added an additional point (vii) concerning admissions of debt and analogy with Order XXXVII CPC.
Amalgamated Commercial Traders (P) Ltd. v. Krishnaswami, [1965] 35 Comp. Cas 456 (SC)	Earlier observation on the approach in winding-up matters (as paraphrased in Pradeshiya).	Referenced as one of the authorities paraphrased in Pradeshiya; used to support the general principles applied by the Court.
Madhusudan Gordhandas and Co. v. Madhu Woollen Industries (P) Ltd., [1972] 42 Comp. Cas. 125 (SC)	Earlier observation on winding-up jurisprudence (as paraphrased in Pradeshiya).	Referenced via the paraphrase in Pradeshiya and relied upon for the stated principles guiding winding-up petitions.
M/s. Nishal Enterprises v. Apte Amalgamations Ltd., Civil Appeal No. 720 of 1999 arising out of SLP (C) No. 14096 of 1998 (decided Feb 5, 1999)	Authority for ordering the respondent company to deposit the disputed amount with the Court where the adversaries' stances hang in balance.	The Court noted this principle and recognised that the Company Court may order deposit of the disputed amount to be retained by the Court pending further proceedings.
Mittal Iron Foundry (P) Ltd. v. Elektro Flame Limited, (2000) 1 Comp LJ 192 (AP)	Accepted the contention that delivery of "C" Forms and failure to clear outstanding despite statutory notice made the company commercially insolvent.	The Court expressed respectful agreement with this approach and treated the furnishing of "C" Forms followed by non-payment and silence as supporting a finding of commercial insolvency in the present facts.

Court's Reasoning and Analysis

The Court proceeded in a stepwise manner consistent with the principles distilled from the authorities cited:

The factual matrix was examined: the Petitioner supplied goods, there were repeated demands, statutory notice under Section 434 was issued, and the Company largely failed to respond. "C" Forms were furnished for prior transactions though many were issued after 27.6.2001.
The Respondent's principal defence relied on Minutes of Meeting dated 7.5.2001 (Annexure R-1) which, the Company said, recorded agreed discounts and other concessions. The Company argued these amounts, and associated debit notes, would reduce or extinguish the debt.
The Court analysed the Minutes of 7.5.2001 and concluded their scope was prospective: the language (use of "further business" and "further discounts") indicated a commitment about future dealings rather than a contemporaneous admission or adjustment of past dues. The Court found no ambiguity in the Minutes that could be interpreted to cancel or reduce the prior debts claimed by the Petitioner.
The Court found the absence of a substantive, contemporaneous written response to repeated demands significant. The fact that the Respondent did not communicate the reconciliation statement or the debit notes earlier, and that a letter dated 22.2.2002 appeared pre-dated (suggesting the defence may have been prepared after service of court notice), weighed against the credibility of the defence and pointed to mala fides.
The Court applied the tests from Pradeshiya and related authorities: where there is a bona fide substantial dispute the petition should be refused, but where the debt is undisputed and the company refuses to pay, solvency is not a defence. The Court added a further consideration that an admission of debt and the genuineness of the defence (not being dishonest or a moonshine) are important; analogies with summary procedure under Order XXXVII CPC are helpful.
The Court accepted the analogy and precedent (including Mittal Iron Foundry) that furnishing of "C" Forms followed by failure to pay despite statutory notice supports a finding of commercial insolvency/debt due. The reconciliation statement dated 27.11.2000 was treated as an admission of debt in favour of the Petitioner, and subsequent transactions did not undermine the claim made in the petition.
Given these findings—the prospective character of the Minutes, the lack of timely communications by the Company, the apparent pre-dating of the Company's defensive letter, and the admission of debt in the reconciliation statement—the Court concluded that no legal objection had been raised which would defeat the petition.

Holding and Implications

Holding:

ADMISSION OF THE PETITION / ORDER FOR DEPOSIT

The petition was admitted. The Respondent Company was directed to deposit with the Registrar the principal sum of Rs. 40,24,148/-. The question of interest was left open for determination at a later stage. The deposit was to be made within four weeks from the date of the order. If the order was not complied with, citation was to be published in Hindustan Times, Vir Arjun and Delhi Gazette returnable on 8th November, 2002. The petition was renotified for further proceedings on 8th November, 2002.

Implications:

The direct practical consequence is that the Respondent is required to pay the principal amount directed (Rs. 40,24,148/-) into Court promptly, failing which further publication and proceedings will follow.
The Court left the determination of interest open, reserving that aspect for future consideration.
The decision rests on the application of established principles governing winding-up petitions (notably those set out in Pradeshiya and related authorities) and the specific facts (reconciliation, delivery of "C" Forms, failure to respond to statutory notice). The opinion does not purport to lay down a novel legal principle beyond applying these authorities to the facts; the Court treated the case as an instance where winding-up proceedings are appropriate because the defence was not shown to be bona fide and substantial.

Note: This summary is confined strictly to the matters and language present in the provided opinion. No facts, arguments, or outcomes beyond those expressly recited in that opinion have been added.

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Itw Signode India Limited Petitioner v. Bhushan Steel And Strips Limited

Vikramajit Sen, J.:— This winding-up Petition under Section 433(1 )(e) and (f) of the Companies Act has been filed with the complaint that the Petitioner had made supply of steel to the Respondent on various dates details of which are contained in para 6 of the Petition for the supplies ending on 22.6.2001 A sum of Rs. 40,89,948 is stated to be outstanding in favour of the Petitioner and against the Respondent (Company). It is not in dispute that for the supplies made from 12.10.2000 to 27.3.2001 “C” Forms have been duly supplied by the Company to the Petitioner. It will be relevant to note that these “C” Forms were issued after 27.6.2001, the bulk of them being on 11.7.2001 The “C” Forms that had not been issued are for the last five consignments covered by Invoices dated 5.4.2001, 21.5.2001,31.5.2001,8.6.2001 and 22.6.2001 It has been stated on behalf of the Petitioner that the “C” Forms do not correspond exactly with the value of the Invoices, since the Company has carried out deductions against some Invoices on account of short weighments.

2. Learned Counsel for the Petitioner has drawn attention to the fact that the Petitioner's repeated written demands for clearance of dues have been totally ignored, and not even been responded to. By Letter dated June 16, 2001 a request had been made to clear the total outstanding of Rs. 40,24,148/-. Thereafter, by the Petitioner's Letter dated 3rd July, 2001, a Statement of Accounts was forwarded showing an outstanding balance of Rs. 59,51,404.25 as on 30.9.2000, which Statement has been signed by two signatories on behalf of the Company. By its Letter dated 10.9.2001 the Petitioner requested for liquidating the dues of Rs. 45,56,617.13 after accounting for supplies made and payments received from October 2000 to June 2001. When all these communications failed to evoke any response, the Petitioner caused a Statutory Notice under Section 434 of the Companies Act dated 19th November, 2001 to issue to the Company claiming a sum of Rs. 40,89,948/- together with interest thereon at the rate of 24% per annum. Since the Company remained silent even after the issuance of the Statutory Notice, yet another request for payment of outstanding dues of Rs. 40,89,948/- was made in terms of the Petitioner's Letter dated 31.12.2001, which also failed to cause any reaction.

3. The Petition was filed on 26.2.2002 and notice was issued pursuant to Orders dated 27.2.2002 It has not been disputed by the Company that the Court notice was served on the Company on 1.3.2002 and also that the Company's Letter dated 22.2.2002 reached the Petitioner on 5.3.2002 Learned Counsel for the Respondent had orally submitted that its letter dated 22.2.2002 was despatched on 23.2.2002 In view off the specific averments contained in the Rejoinder to the Petition, this submission on behalf of the Company ought to have been substantiated by the filing of the Postal Receipts. The copy of the Rejoinder was served on Counsel for the Company on 15.7.2002

4. The contention of Mr. Malhotra, Learned Counsel appearing for the Company is that there is no doubt as to its solvency. It has been strenuously contended that there has been a material concealment inasmuchas Annexure R-1 to the Company's Reply, being Minutes of a Meeting held between the parties on 7.5.2001 has neither been filed nor been adverted to in the Petition. These Minutes read as follows:

“Minutes of Meeting between M/s. ITW Signode India Ltd. and M/s. Bhushan Steel & Strips Ltd. at the Corporate Office, New Delhi on 7.5.2001

ITW SIGNODE BHUSHAN STEEL MR. N.LN RAJU Mr. Sanjay Singal G.M Steel Packaging Vice Chairman Group. Mr. Raju Gogulwal Mr. Kishi Saxena Key Account Manager Dy General Manager

The following points were discussed and agreed during the meeting:—

1) BSSL has conveyed to ITW that their price are higher by Rs. 5,500. per tonne and also that if prices are not matched BSSL will not give further business. ITW has agreed to give further discount to BSSL as under:—

A. On Apex Grade Strapping - 8%

B. On Magnus Grade Strapping -12%

2) ITW has agreed to supply two sets of seal less strapping tools on free of cost basis to BSSL. It has been promised that the use of this tool will reduce the packing cost.

3) BSSL has conveyed that since most of the tools are not working properly/at all. ITW has agreed to rectify and put in to use/operation all tools supplied by ITW on free of cost basis i.e no cost of spares will be charged by ITW.

4) It has again been pointed out by BSSL that the strapping received are all having the tolerance on the + & - side whereas the order gives tolerance on Both + & - side. This + tolerance reduces the length of the strapping coils. ITW has agreed to look in the matter & take care of the same in future supplies.

For & on behalf of ITW Signode Ltd.For & on behalf of India Bhushan Steel & Strips Ltd.

Sd/- N.LN Raju Sd/- Kishi Saxena General Manager Dy. General Manager”

5. Mr. Malhotra's argument is twofold, (a) that if the discounts are given, no amount would be due and payable and on the contrary some amount may be claimable by the Company from the Petitioner;(b) that even if the discounts are not given, only the sum of Rs. 12,68,270.66 would be payable as per Annexure R-2 to the Reply. No explanation is forthcoming as to why such a Statement was not forwarded to the Petitioner by the Company in response to the several written communications received from it by the Company. This observation also holds for the contents of the Letter dated 22.2.2002, which according to the Petitioner has been pre-dated in order to give the impression that the defence preceded the filing of the winding up petition. It has been conceded by Learned Counsel for the Respondent that the sum of Rs. 12,668,270.66 only has been shown as a contingent liability in the Balance-Sheet of the Company. It cannot be appreciated why a copy of the Balance-Sheet has not been filed along with the Reply. It certainly renders it possible to draw an adverse inference, i.e that a larger sum if not the claimed sum of Rs. 40,89,948/- has been shown in the Company's Balance-Sheet. Mr. Malhotra has vehemently argued that since the Company is solvent, and since a dispute as to the accounts has been raised, these proceedings are not appropriate, and the Petitioner should be relegated to the filing of a Civil Suit. It has also been contended that the Petitioner has not taken into account Debit Notes issued by the Respondent from time to time, which according to the Company were in implementation of the Agreement arrived at on 7.5.2001 Significantly there is no mention of these Debit Notes prior to the Reply to the Petition.

6. The scope of the inquiry to be conducted in winding up petitions has been encapsulated by the Hon'ble Supreme Court in Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro-Chemical Ltd. and Another, (1994) 2 Comp U 50 (SC). In winding-up proceedings it is necessary to keep the following conditions in perspective --

(i) If there is a bona fide dispute and the defence is a substantial one, the Court will not wind-up the company.

(ii) Where the debt is undisputed the Court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay it.

(iii) Where the defence of the company is in good faith and one of substance, and the defence is likely to succeed in point of law, and the company adduces prima facieproof of the facts on which the defence depends, the petition should be rejected.

(iv) The Court may consider the wishes of creditors so long as these appear to be justified.

(v) The machinery of winding-up should not be allowed to be utilised merely as a means of realising its debts.

[For the above propositions see Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro-Chemical Ltd. and Another, (1994) 2 Comp U 50 (SC) in which the observation in Amalgamated Commercial Traders (P) Ltd. v. Krishnaswami, [1965] 35 Comp. Cas 456 (SC) and Madhusudan Gordhandas and Co. v. Madhu Woollen Industries (P) Ltd., [1972] 42 Comp. Cas. 125 (SC) have been paraphrased].

(vi) If the stance of the adversaries hangs in balance it is always open to the Company Court to order the Respondent Company to deposit the disputed amount. This amount may be retained by the Court and be held to the credit of the suit, if any. [see Civil Appeal No. 720 of 1999 arising out of SLP (C) No. 14096 of 1998 - M/s. Nishal Enterprises v. Apte Amalgamations Ltd., decided on February 5, 1999].

It appears to me that the following point may be added to the foregoing considerations.

(vii) Generally speaking, an admission of debt should be available and/or the defence that has been adopted should appear to the Court not to be dishonest and/or a moonshine, for proceedings to continue. If there is insufficient material in favour of the petitioners, such disputes can be properly adjudicated in a regular civil suit. It is extremely helpful to draw upon the analogy of a summary suit under Order XXXVII of the Code of Civil Procedure. If the Company Court reaches the conclusion that, had it been exercising ordinary original civil jurisdiction it would have granted unconditional leave to defend, it must dismiss the winding-up petition.

7. The focal points of the defence appears to be predicated on the afore-mentioned Minutes dated 7.5.2001 On its reading I find that there is no ambiguity in the language and it only indicates that the Company would not give any further business to the Petitioner unless there was a reduction in price. This is the only conclusion that can be drawn because of the use of the words “further business” and “further discounts”. There is also some controversy on the non-supply of the tools mentioned in the Minutes. But, in my opinion these are of little significance to the claiming the Petition, since it is nota demand contemporaneous with supplies. The construction sought to be given to these Minutes cannot be appreciated since the parties had arrived at a consensus on the amount due on the re-conciliation statement dated 27th November, 2000. It is my considered opinion that the scope of the Minutes was prospective only. This is fortified from the fact that “C” Forms for all the prior transactions had been furnished after these Minutes. In Mittal Iron Foundry (P) Ltd. v. Elektro Flame Limited, (2000) 1 Comp LJ 192 AP, the Court accepted the contention of the petitioning creditor that since the Respondent Company had delivered “C” Forms, and had not cleared the outstanding amount despite Statutory Notice it had become commercially insolvent. I am in respectful agreement with this approach.

8. What is extremely important is that no written response was made by the Company in spite of repeated letters received by it from the Petitioner in which large sums of money had been demanded. It taints the defence as dishonest and an after thought. I am also inclined to accept the contention of Learned Counsel for the Petitioner that the Respondent's letter dated 22.2.2002 has been a predated. Apart from a statement in the Rejoinder, the Petitioner had immediately responded to this letter in terms of its letter dated 8.3.2002 in which ft had not only mentioned that the letter had been wrongly dated but also that it had been received through Registered A.D on 5th and 6th March, 2002. It had also categorically stated that- “it is clear from the dates on the envelope that the letter has been written after having received the court notice on 01.03.2002” The sequence of events indicates that the defence has been formulated after the Petition was filed, and therefore does not attract credence.

9. Keeping all the circumstances and submissions in view, I find that no legal objection had been raised which would defeat the present petition. It has already been seen that the solvency of the Company would not be relevant in the face of a resolute refusal to pay its outstanding dues. In the present case there is a clear ad mission of debt in the light of the settled re-conciliation Statement dated 27th November, 2000. When subsequent transactions are taken into consideration, the amount claimed in the Petition is beyond controversy. The fact that no replies were sent to the letters of the Petitioner, and that apparently pre-dated letter had been sent to set up a defence to the petition, after its receipt on 1.3.2002, is indica tive of mala fides.

10. The petition is admitted.

11. The Respondent Company is, accordingly, directed to deposit with the Registrar of this Court the sum of Rs. 40,24,148/- which is the principal sum due. The question of interest is left open at the present stage. This deposit should be made within four weeks from today. If this order is not complied with, citation be published in Hindustan Times, Vir Arjun and Delhi Gazette returnable on 8th of November, 2002.

12. Renotify the petition for further proceedings on 8th of November, 2002.

Itw Signode India Limited Petitioner v. Bhushan Steel And Strips Limited

Structured Summary of the Opinion — Vikramajit Sen, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

Respondent Company's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Itw Signode India Limited Petitioner v. Bhushan Steel And Strips Limited

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