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2013 (3) TMI 529 - DELHI HIGH COURTWinding up petition - Petitioner is a company incorporated in People’s Republic of China seeking the winding up of the Respondent, Shilpi Cable Technologies Ltd. - Respondent purchase cables and accessories from the Petitioner - whether there is any admission of liability by the Respondent and if there is no such admission, whether the denial by the Respondent of its liability constitutes a sham defence? - Held that:- For seeking the winding up of the Respondent company there must be an undisputed debt and that the Respondent company is unable to pay the debt. Section 434 of the Act gives instances where the company is deemed to be unable to pay its debts. Even if it is “proved to the satisfaction” of the Court that the Respondent company is unable to pay its debts, the Petitioner would also have to show that the company “neglected to pay the sum or to secure or compound for it to the reasonable satisfaction” of the Petitioner. It has time and again been emphasized by the Supreme Court that the machinery of winding up should not be utilized for recovery of money. [See Pradeshiya Industrial & Investment Corporation of U.P. v. North India Petrochemicals Ltd. (1994 (2) TMI 267 - SUPREME COURT OF INDIA)]. The mere refusal to pay debts should not be understood as ‘inability’ of the Respondent to pay its debts. In the present case, there were undoubtedly three separate contracts entered into between the parties, i.e. supply of cables, supply of accessories like Jumpers, Connectors and Surge Arrestors. Both the parties have been dealing with each other for over seven years. The Petitioner itself being the manufacturer of cables and accessories knew that for the purpose of the business of the Respondent the mere supply of cables without the accessories could not be sufficient. The Respondent was in turn supplying cables and accessories to the telecom service providers including Tata Tele Services Limited (‘TTL’). The mere supply of cables to TTL would not have constituted a complete delivery of goods. The peak period in the telecom industry for the supply of cables was the first three months of the year. Therefore, the failure on the part of the Petitioner to supply the accessories would adversely affect the corresponding obligations of the Respondent to its customers. For some reason the Petitioner has in its narration of facts not referred to two emails, the first dated 26th March 2009 whereby the Respondent asked for reasons why it had not received Jumpers, Surge Arrestors and Connectors by that date. The second was the email dated 3rd April 2009 again adverting to the above issue. This explains the emails dated 9th May 2009 and 22nd May 2009 by which the Respondent asked the Petitioner to stop despatching further cables. It is apparent that there were disputes between the parties on whether the supplies by the Petitioner were complete and whether the Respondent was justified in not accepting delivery of the consignments. It is difficult, in the circumstances, and at this stage, to conclude that the defence of the Respondent is a sham one. In the present case the seller had itself imposed the conditions of opening of L/C. The B/L for the five shipments was made to the order of IOB which was no longer a banker of the Respondent. This was a CIF contract and as explained by the Supreme Court in Phulchand Exports Limited v. O.O.O. Patriot [2013 (3) TMI 493 - SUPREME COURT] one of the requirements was that the shipping documents had to accompany the despatch of the consignments. These include the invoices, B/L and the policy of insurance. With the documents accompanying the consignments not in order, they had to necessarily be amended as requested by the Respondent to facilitate the payment even on DP basis. For some reason this was not facilitated by the Petitioner. The contention of the Respondent that the above facts do not reflect any deliberate failure to make payment cannot in the circumstances be rejected as a sham defence. For the purposes of Sections 55 and 56 SGA, the Petitioner would have to show that the neglect or refusal by the Respondent to pay for the goods was wrongful. This would require the examination of evidence to find out whether the buyer was justified in refusing to pay for the goods. The minutes of meeting dated 20th August 2009 of the Petitioner and the Respondent discussing about defective quality. Subsequently on 24th May 2010 the Respondent raised the issue of defective quality of the cables and attached photographs of the damaged lengths of the cables with nail marks. Thus, it appears that it was not the first time that this objection was raised. Yet, the complete picture will become clear only when the evidence that may be adduced by both parties is examined in detail in the civil suit stated to be pending. It is not possible for this Court to conclude at this stage that the refusal by the Respondent to make payment for the goods was deliberate or wrong. While the pendency of a suit will not per se preclude the exercise of the winding up jurisdiction of the Company Court, on the facts of the present case, the Court is not persuaded to hold that the Respondent is unable to pay its debts and is, therefore, required to be wound up under Sections 433(e) and 434 of the Act. Consequently, the petition is dismissed with costs of Rs. 20,000 which will be paid by the Petitioner to the Respondent within four weeks from today.
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