TMI Blog1991 (10) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... rawn on the Bank of Baroda, Vellore branch, in favour of the respondent. It is the further case of the petitioner that the company supplied only three tonnes of paper and failed to supply the remaining seven tonnes. The value of three tonnes of paper is only Rs. 53,070 excluding tax. On account of the non-supply of seven tonnes of paper by the respondent, the petitioner could not fulfil his obligation towards his customer, one Royal Agencies, with whom the petitioner had entered into a contract for the supply of ten tonnes of paper. The petitioner states that he had incurred a loss of Rs. 10,395 due to the breach of contract committed by the respondent. A notice of demand was issued through an advocate by the petitioner on September 9, 1989, for which the respondent sent an evasive reply. This notice was issued under section 434 of the Companies Act. In the above circumstances, the petitioner prays for the winding up of the respondent-company. The respondent has filed a counter-affidavit denying the claim of the petitioner that it is indebted in a sum of Rs. 1,36,525. According to the respondent, the demand draft for Rs. 1,78,200 dated June 21, 1989, was received by the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and substantial one or it is a mere cover or it is an empty dispute with a view to cover up its real inability. The Supreme Court, in the case of Amalgamated Commercial Traders ( P. ) Ltd. v, A C. K. Krishnaswami [1965] 35 Comp Cas 456, has clearly laid down that an order of winding up will not be made where a debt is bona fide disputed by the company and the court is satisfied with the company's defence and the following ratio is very pertinent (headnote) : "It is well-settled that a winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatised as a scandalous abuse of the process of the court. If a debt is bona fide disputed there cannot be 'neglect to pay' within the meaning of section 434(1)( a ) of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into play, and the ground of winding up, namely, that the company is unable to pay its debts, is not substantiated". Subsequently, in Bhalchandra Dharmajee Makaji v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1979] 49 Comp Cas 644, it has been held by the Madras High Court (Ramaprasada Rao J. (as he then was)) as follows (headnote) : "It is fundamental that, in order to sustain a case for winding up of an incorporated company on the ground that it is unable to pay its debts, the debt which is the substratum of the action either under section 433( e ) on its own or under section 433( e ) read with section 434(1)( a ) of the Act is not a disputed debt or a debt which could be found after an investigation and adjudication on the claims made inter se between the so-called creditor and the debtor company. Any such investigation which would involve the determination of the quantum and quality of the liability would certainly raise a reasonable presumption that it is a disputed debt. Once such a lingering doubt arises in the mind of the company court that the debt is not a sure debt but a debt which could only be ascertained and determined after an investigation into the facts and circumstances of the case, then, unless there is demonstrative mala fides on the part of the company concerned, the company court cannot undertake the examination as to the quantum of the liability or the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner herein), as extracted above, it is seen that the petitioner has approached this court and filed the company petition only to get back his money. As rightly held in Kamadenu Enterprises' case [1984] 55 Comp Cas 68 (Kar), the jurisdiction of this court under section 433 of the Companies Act, 1956, is not that of a court which is essentially meant for settling money disputes between parties, but is to subserve the object of winding up of companies which have not paid their debts or which are unable to pay their debts. In my opinion, the petitioner has not satisfied the pre-requisite to establish a prima facie case against the respondent-company. As, rightly contended by Mr. A. L. Somayaji, learned senior advocate, when a claim or debt is disputed, the proper forum for that is a civil court. In my opinion, admittedly, there was a genuine dispute as to the liability of the respondent-company to pay the amounts claimed in this company petition. Under these circumstances, I am of the view that it would not be proper for me to decide the case in the summary proceedings under section 433 of the Act. In the light of the above rulings, it has to be considered whether the debt is bona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the other hand is determined, the debt claimed to be due cannot be determined. Exhibit R-2 is an indent bearing No. 685, dated June 22, 1989. The name of the customer, Meenakshi Paper Mart, Chunnambukara Street, Vellore, and the name of the indentor, Efficient Enterprises, have been clearly mentioned. The indent was placed by Efficient Enterprises, Pallipalayam, Erode-6, to Seshasayee Paper and Boards Ltd., Pallipalayam, Erode, the respondent herein. Based on this indent, supply has been made by the respondent-company to the petitioner, viz., Meenakshi Paper Mart. The said indent has also been signed by the indentor, Efficient Enterprises. Exhibit R-3 is the invoice raised by the respondent-company. The customer code, name of the indentor and all the other particulars have been mentioned in the invoice. In the column "case in need" the name of the indentor, Efficient Enterprises, has been shown. Exhibit R-5 is the suit filed by Efficient Enterprises, represented by its partner, L. Lakshmanan (indentor), against Meenakshi Paper Mart, represented by proprietor, B. Viswanathan (the petitioner herein), and another on the file of the Subordinate Judge, Sankari. It is mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cient Enterprises, Pallipalayam, Erode, who is one of your indentors/stockists. My client states that when he met your indentor/stockists, Efficient Enterprises, in person two months ago they both entered into a contract for the sale of ten tonnes (1,000 reams) of 10 kg. poster paper at the rate of Rs. 17,400 per tonne. My client further states that on the basis of this contract entered into with your indentor/stockist, my client took a demand draft for Rs. 1,78,200 (rupees one lakh seventy-eight thousand and two hundred only) Rs. 1,74,000 towards cost of 1,000 reams of paper and Rs. 4,200 for tax and surcharge totally for Rs. 1,78,200 on June 21, 1989, in the Bank of Baroda in favour of your mill". Exhibit P-8 is the reply notice dated September 2, 1989, sent by Aiyar and Dolia to counsel for the petitioner, Mr. G. Jayachandran. Exhibit P-9 is the notice dated September 9, 1989, sent by the petitioner to the managing director, Seshasayee Paper and Boards Ltd., demanding payment of Rs. 1,36,425 failing which it is stated that the petitioner will approach the company court for winding up under section 433( e ) of the Act. It is thus seen that the debt in question requires ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and prospective liabilities of the company". Under section 434 of the Act, the deemed inability to pay the debts will arise when a creditor to whom the company is indebted in a sum exceeding Rs. 500 has served on the company by causing it to be delivered at its registered office a demand notice requiring the company to pay the sum so due, and the company has, for three weeks thereafter, neglected to pay the sum or to secure or compound it to the reasonable satisfaction of the creditor. Unless the Statutory notice is in conformity with the mandatory requirements of section 434(1)( a ) of the Act, the presumption of inability cannot be raised. In the present case, the notice is addressed only to the managing director and not to the company. The registered office of the company is at Pallipalayam, Salem District, as can be seen from the postal index number code of delivery post offices in Tamil Nadu circle, marked as exhibit R-6 ; the pin code number of Pallipalayam is 638 006. The notice purporting to have been issued under section 434 is not only one addressed to the managing director, but also the pin code number given is 638 007. Therefore, the statutory exhibit P-9 notice doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be invalid for any reason then it is still open to the creditor to fall back upon section 434( c ) and prove that the company cannot pay its debts. Indian Companies Act, 1913, In re, AIR 1948 Cal 335 ; [1949] 19 Comp Cas 1 and Bukhtiarpur Bihar Light Railway Co. Ltd. v. Union of India, AIR 1954 Cal 499 ; [1954] 24 Comp Cas 507 relied on". In the present case, there is no evidence at all to establish that the respondent-company is unable to pay its debts. Hence, the present petition is also liable to be dismissed on the ground that the statutory notice issued by the petitioner does not meet the requirements of section 434 of the Act. It is a settled principle of law that the relief of winding up is a discretionary relief and the court has to find out whether winding up would be in the interest of justice and also in the public interest. The following principle has been laid down in the case of Bhalchandra Dharmajee Makaji's case [1972] 42 Comp Cas 190 , 195) as has been extracted above. The decision in Nopany and Sons P. Ltd., In re [1991] 70 Comp Cas 262 (Cal) can also be usefully applied to the facts of the present case, wherein the learned single judge of the Calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the court on the basis of the facts of each particular case and on the basis of the materials that may be available to the court at the time the court is called upon to decide the question". There is no dispute with regard to the proposition laid down by the Calcutta High Court. But, however, as rightly held by the Calcutta High Court, each case will have to be considered and determined by the court on the basis of the facts of each particular case and on the basis of the materials that may be available to the court at the time the court is called upon to decide the question. As already observed by me on the facts and circumstances of the present case, there is a bona fide dispute with regard to the debt which forms part of the subject-matter of the winding up proceedings. This court will not entertain any winding up petition on the basis of the said disputed debt and hence, the only option left to this court is to grant leave to the parties to resolve the disputes in appropriate proceedings in the appropriate forum. Mr. Jaya-chandran, learned counsel for the petitioner, has next relied on the recent judgment of the Punjab and Haryana High Court in Northern India Iron and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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