9911796707
TMI Blog2002 (4) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... company incorporated under the provisions of the Companies Act, 1956, its registered office is situate at MSIL House, No. 36, Cunningham Road, Bangalore. The object of the company is as stated in the memorandum of association. Apart from others, to carry on all kinds of agency business and in particular to act as the manufacturer's representatives, selling agents, distributors, storekeepers, stock Its, business agents, organisers, canvassers, or local representatives of all products manufactured by the Government of Karnataka and/or the Government of India in their industrial undertakings and also by limited liability companies or other companies, factories, firms, corporations, whatsoever, industrial or otherwise. The respondent is a company incorporated under the provisions of the Companies Act, 1956, as a public limited company by shares. The object for which the respondent-company is established is to conduct and carry on business in brewery, winery, distillery, etc. According to the petitioner-company, the nominal capital of the respondent-company is Rs. 100 crores, divided into ten crore shares of Rs. 10 each. The petitioner-Mysore Sales International Limited ("MSIL" for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 1989, to deal in the products of all distilleries, breweries and wineries in the entire State of Karnataka, including the import and export of liquor with effect from September 30,1989. In the same communication, the petitioner-company was requested to make suitable preparatory arrangements in that behalf. Before the said Rules could be brought into force with effect from September 30, 1989, some of the manufacturers of liquor filed petitions before this court, inter alia, questioning the validity or otherwise of the amended Rules. A learned single judge of this court while entertaining the petitions by his order dated September 27, 1989, had stayed the operation of the amended Rules. The interim order was a short lived one. After hearing the parties to the its a Division Bench of this court by its order dated November 13, 1989, was pleased to dismiss the writ petitions. The State Government in exercise of its powers under sub-clause (ii )(b) of rule 3 of the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1989, notified M/s. MSIL (petitioner-company) for the purpose of the rule as "sole distributor" by publishing the same in the official gazette dated November 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the special leave petitions filed by M/s. Khoday Distilleries Limited and others, was pleased to grant an order of stay of the judgment of this court subject to certain conditions and one such condition is as under : "In case ultimately the petitioners lose in the final hearing, provision should be made for the payment of compensation in favour of the third respondent namely, M/s. Mysore Sales International." The Supreme Court by its judgment dated December 15, 1995, since reported as Khoday Distilleries Limited v. State of Karnataka, AIR 1996 SC 911, was pleased to reject all the issues canvassed before it by the parties to the lis and was further pleased to declare that the amended Rules, 1968, as amended on September 13,1989 are valid, intra vires the Act and do not violate the constitutional provisions, specifically articles 14 and 19(1)(g) of the Constitution. The court was further pleased to direct the appellants therein, to pay to MSIL the requisite commission amount on the basis of the dealings conducted by them in view of the interim orders made by the court. The directions issued are as under (page 917): "In the premises, these appeals have no merit and they are d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atutory notice dated November 21,1998, calling upon the respondent-company to pay the entire arrears of commission with interest with effect from November 13, 1989, together with interest at 22 per cent, per annum within 21 days from the date of receipt of the notice, failing which legal action would be initiated for winding up the respondent-company. On December 29, 1998, the respondent-company had replied to the notice denying its liability to pay the amounts demanded in the statutory notice and also the "debt due". It was stated therein, that the claim of the petitioner-company is fanciful and doubtful and therefore, the petitioner-company is not entitled to take any action including filing the winding up petition. The petitioner-company asserts that the respondent-company is due and liable to pay a sum of Rs. 51,70,49,000 (rupees fifty-one crores seventy lakhs forty-nine thousand only) with further interest at the rate of 22 per cent, till the date of realisation of the entire amounts due. In view of the non-payment of the aforesaid amounts in spite of receipt of statutory notice, it must be presumed that the respondent-company is unable to pay its "debts due" and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... future obligations and liabilities. The company is commercially solvent and sound and therefore, the company is not liable to be wound up on the ground that it is unable to meet the current demands. Any order of winding up would prejudice and affect the entire body of shareholders and the same would be contrary to public interest. On the claim made by the petitioner-company, it is stated that the petition is based upon their alleged right to collect commission/margin at 5 per cent, on the sale of liquor/beer, based on the letter dated September 13, 1989, written by the Under Secretary to the Government of Karnataka, Home Department (Excise). According to the respondent-company, a perusal of the letter bears out that the petitioner-company was not entitled to claim commission/ margin and the letter merely enables the petitioner-company to charge reasonable margin not exceeding 0.5 per cent, on exports and 5 per cent, on the sale of liquor/beer within the State in respect of its operation as distributor. The petitioner-company is entitled to a reasonable margin and not a commission. Reasonable margin is a margin, which the distributor collects from the person to whom he/it sells. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and dates, and the legal issues that requires to be considered and decided by this court in these company petitions. The issues raised are as under : (I)That the commission payable to MSIL by the respondent companies amounts to a "debt due" under section 433(e) of the Companies Act, 1956. Elaborating on this, learned counsel would contend that the respondent-company has unjustifiably withheld the margin money payable right from August13, 1989, and has not paid any part of it in spite of repeated requests and demands. Therefore, it should be presumed that the respondent-company is unable to pay its debt. In support of this contention, learned counsel has relied upon the observations made by the Full Bench of the Calcutta High Court in the case of Bauchharam Majumdar v. Adyanath Bhattacharjee, JCR Cal 936, the decision of this court in the case of Kudremukh Iron Ore Co. Ltd. v. Kooky Roadways Pvt Ltd. [1990] 69 Comp Cas 178 , the observations made by the apex court in the case of Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767; AIR 1966 SC 1370, Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan [1966] 36 Comp Cas 426 ; AIR 1966 SC 1707, the observations made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Spinning and. Weaving Mills, AIR 1963 Orissa ; State Bank of India v. Hegde and Golay Ltd. [1987] 62 Comp Cas 239 (Karn.), the decision of this court in the case otjagadale and Sons v. State of Karnataka, AIR 1990 Kar 251 ; [1991] KLJ 18. (IV)The debt need not be precisely quantified to maintain a petition under section 433(e) of the Act. (V)In view of the observations made by the apex court in Khoday Distilleries Limited v. State of Karnataka, AIR 1996 SC 911, the respondent-company is bound to pay margin/commission to the petitioner-company. Since there is non-payment of debts due to the petitioner-company, the respondent- company requires to be wound up by this court. (V)The contention of the respondent-company that the petition is barred by limitation is erroneous and untenable, and lastly, (VI)that the contention of the respondent-company that the petitioner-company should approach the civil court is erroneous and untenable. In that, it is stated, where there are no factual issues involved which require the appreciation of evidence and if the questions involved are pure questions of law, the discretion lies with the court to entertain the petition and the discretion vested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due from the respondent-company. Fourthly, the respondent-company is commercially solvent and is able to meet all its liabilities and commitments and therefore it is not just and proper to proceed to wind up the respondent-company, even if it is found that the debt is due and payable by the respondent-company to the petitioner-company. The margin money requires to be collected only from the wholesaler/ purchaser and not from the manufacturer as admitted by the petitioner-company in its rejoinder and therefore, the claim with regard to the debt due from the respondent-company has no basis whatsoever. The claim made by the petitioner-company is wholly imaginary, doubtful and fanciful and the claim is not only disputed but also denied. When a company has over 7,000 shareholders and public financial institutions possess shares in the company whose market value is over Rs. 22 crores and the company is paying excise duty, sales tax and other taxes and cess aggregating to over Rs. 80 crores a year, it would be contrary to public interest to wind up the respondent-company even under the provisions of section 433(f) of the Act. Further, no winding up petition can be admitted unless the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and advertised, the nature of enquiry that quires to be made by this court is explained by a Division Bench of this court in the case of Airwings Pvt. Ltd. v. Viktoria Air Cargo GmbH [1994] ILR Karn 2560 ; [1995] 84 Comp Cas 688 . The court has observed (pages 720-22): "II. When a winding up petition is filed seeking winding up of the company under section 433(e) of the Act and from the material available from the petition and any other additional material which the court may require the petitioning-creditor to furnish if it is found that the respondent-company is a going concern and its commercial-cum-manufacturing activities are not suspended or are only temporarily suspended and it is employing number of workmen, then before admitting and advertising the petition, the following procedure is required to be adopted by the court : (a)The court may hold a summary enquiry, after issuing notice to the respondent-company giving it an opportunity to file its objections to the proposal for winding up, for ascertaining the following facts and for arriving at prima facie findings thereon : (i)Whether any debt is due from the respondent-company to the petitioning-creditor; if yes, what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visaged by section 434(1)(a), and/or section 434(1)(b) of the Act. If such deeming fiction is found to arise in the light of the evidence available on record during such preliminary enquiry, then in the light of the tentative findings reached by the court on issues (a)( i) and (a)( ii) and also keeping in view such deeming fiction that may have arisen on record for arriving at prima facie finding on point No. (a) (iii ) the court may admit the petition and direct issuance of advertisement of the company petition. (d)However for arriving at prima facie finding on point No. (a)( iii) if it is found to be a case where there is no evidence at the stage of such preliminary enquiry about raising of deemed fiction under section 434(1)(a) and /or ( b), then the court may also enquire, of course, prima facie, as to whether there is scope for raising deeming fiction as contemplated under section 434(1)(c). For that purpose, the court may look into the evidence led on record by the petitioning-creditor as well as by the company and try to assess in a summary way as to whether the company is prima facie shown to be commercially insolvent as contemplated under section 434(1)(c). If the court a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision vests a discretion in the court. But the discretion has to be exercised in the manner any other judicial discretion is to be exercised ;it is a judicial power warranting a proper exercise to grant relief in appropriate cases. If the respondent-company pleads defense in good faith and puts forth a substantial case against the petitioner's claim, the petition for winding up will be rejected. A mere assertion of a debt payable by the respondent-company is not sufficient to attract the discretion of the court in favour of the petitioner . . . Whenever the respondent-company comes forward and sets forth its defence, this court has to examine the nature of the respective cases pleaded by the parties and if a prima facie case is made out by the petitioner, the respondent should shoulder the onus of disproving it, by showing that its defence is in good faith and is one of substance and it is likely to succeed in point of law. The guidance to find out whether the defence is bona fide and one of substance, reference to the principles enunciated under Order 37, rule 3, of the Civil Procedure Code may not be irrelevant ... A plea which is frivolous, mere moonshine and which, on the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fide and reasonable dispute is spelt out, the court would be justified in dismissing the petition in limine at the threshold. Likewise, even after notice has been issued to the respondent-company before admitting the petition, it cannot be said that thereafter the court would not be considering the question whether a case is made out for not making a winding up order to proceed further notwithstanding the acknowledgment of debt to the petitioner, and, the court must agree to advertise the public notice thereof, sending a word about the winding up to all concerned, inviting objections and then alone consider the matter of making an order of winding up or not, even though the court on existing material is satisfied that it will not be just and equitable to order winding up. The principle is well-settled by a catena of decisions of different High Courts of the country, that the word "may" used in sections 433 and 443 is indicative of the fact that even if one or more ground mentioned in section 433 is made out the company is unable to pay its debt, it is still not mandatory, but rests in the discretion of the court whether to make an order of winding up. The court must in each case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner-company, it is necessary to find out what exactly is the position in relation to the debt on facts pleaded by the petitioner-company. By virtue of the amended sub-clause (b) of clause (ii) of rule 3 of the rules, 1989, the State Government is empowered to specify a Government owned or controlled company as a sole distributor to deal in all products of all distilleries or breweries or wineries in the State of Karnataka or import liquor from outside the State for the purpose of distribution or sale within the State or export liquor outside the State. The Excise Commissioner is the licensing authority. The State Government in exercise of the power under the aforesaid rules has notified the petitioner-company-MSIL as the sole distributor. The Excise Commissioner has issued distributor's licence as envisaged under the rules. Under the Government order dated November 13, 1989, the petitioner-company is entitled to charge reasonable margins in respect of its operations as distributor. Even according to the petitioner-company, by virtue of the amended rules and the orders of the State Government, every manufacturer of IMFL, beer, wine and fenny in the State of Karnataka is bound to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hiya Industrial and Investment Corporation of U. P. v. North India Petro Chemical Ltd. [1994] 79 Comp Cas 835 ; [1994] 3 SCC 348, had an occasion to consider the meaning of those expressions while construing the provisions of section 433 of the Companies Act. In that, the court has observed for the purpose of section 433(e) of the Act (page 842) : "(. . .) (1) there must be a debt; and (2)the company must be unable to pay the same ; An order under clause (e) is discretionary ; A debt under this section must be a determined or a definite sum of money payable immediately or at a future date. (. . .) 'unable to pay its debts' . . . should be taken in the commercial sense. In that, it is unable to meet the current demands,... that is to say, that its assets are such ... as to make it reasonably certain as to make the court feel satisfied that the existing and probable assets would be insufficient to meet the existing liabilities." B.G. Sridharan, learned counsel for the petitioner-company contends that in view of the observations made by the apex court is Khoday Distilleries Ltd.'s case, AIR 1996 SC 911, the respondent-company is liable to pay the margin/ commission to the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hyme or reason. The defence pleaded and projected seems to be reasonable, bona fide and substantial one and not a defence pleaded for the sake of defence. The issues that may require consideration and decision are whether the amendment rules authorise the petitioner-company to collect any margin money in respect of its operation as a distributor, and whether by an executive order, the State Government could have permitted the distributor to collect the margin money without an appropriate statutory provision, and whether the petitioner-company could demand the margin money from distilleries or breweries or wineries for the alleged breach of the amended Rules and whether the petitioner-company could have quantified the maximum margin money payable from the manufacturers of liquor without rhyme or reason and whether the observations and directions issued by the apex court would also bind the respondent-company, which was not a party to those proceedings are triable issues, which require a detailed examination and investigation which is not permissible in a petition filed under section 433(e) of the Act, since what is required to be seen at the stage of admission and advertisement of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led within three years as envisaged under section 72 of the Limitation Act, 1963, and if any claim made is of beyond three years, that would be barred by limitation and the trial court will not pass any decree on such a claim. Therefore, prima facie it looks to me that the claim is barred by limitation. However, Sri B. G. Sridharan, learned counsel for the petitioner-company contends that the provisions of law of the Limitation Act would not apply to proceedings under the provisions of the Companies Act. In my view, this contention of learned counsel may not be correct, in view of the observations made by a Division Bench of this court in Airwings Pvt. Ltd. v. Viktoria Air Cargo GmbH [1994] ILR Karn 2560; [1995] 84 Comp Cas 688 , 720 wherein the court was pleased to observe that while making enquiry whether a petition for winding up filed under section 433(e) of the Act requires to be admitted and advertised, one of the enquiries that requires to be made is "whether the said debt due to the petitioning creditor is within the limitation and is payable by the respondent-company". Therefore, this defence of the respondent-company cannot be either termed as frivolous or lacking bona f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng up is not maintainable, since the term debt does not refer to claim for damages. Nextly, whether the amended rules 1989 authorise the petitioner-company to collect the margin from the manufacturers of liquor for its operation as a distributor and whether by an executive order in the absence of appropriate amendment to the provisions of the Excise Act and the rules framed, could have permitted the petitioner-company to charge and collect margin is another debatable issue and that cannot be decided in a company petition for winding up. However, Sri B. G. Sridharan, learned counsel for the petitioner-company contends that in view of the observations made by the apex court in Khoday Distilleries Ltd's case, AIR 1996 SC 911, even the manufacturers are liable to pay commission, margin to the petitioner-company for its operation as a distributor. This contention of learned counsel seems to be on mere assumption for the sole reason that the subject matter before the apex court was only with regard to the validity or otherwise of the amended rules 1989, and the rules only provide for grant of a distributor's licence to deal in all products of all distilleries, or breweries or wineries i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly solvent. On the facts of the case, the statutory presumption under section 434(1)(a) of the Act is replaced by the factual position and the company is solvent and able to pay its debts, if any. This is another redeeming feature in favour of the respondent-company. In the present case, the debt is disputed and the defence seems to be substantial and not mere moonshine. Under such circumstances, the apex court, while deeming the scope of section 433(e) of the Act in Madhusudan Gord-handas and Co. v. Madhu Woollen Industries P. Ltd. [1971] 3 SCC 632; [1972] 42 Comp Cas 125 was pleased to observe (page 131) : "Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (See London and Paris Banking Corporation, In re [1874] LR 19 Eq. 444). Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonableness of the case. (See P and J Macrae Ltd., In re [1961] 31 Comp Cas 424 (CA))." The Orissa High Court in Bichitrananda Panda v. Orissa Construction Corporation Ltd. [1999] 97 Comp Cas 345 was pleased to state (see headnote) : "On a petition for winding up a company under section 433(e ) of the Companies Act, 1956, the principles on which the court acts are (1) that the defence of the company is in good faith and one of substance ; (2) that the defence is likely to succeed in point of law; and (3) that the company adduces prima facie proof of the facts on which the defence depends. If the debt was bona fide disputed, there cannot be 'neglect to pay' within 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 for winding up, namely that the company is unable to pay its debt, is not substantiated. The expression 'neglect to pay the sum demanded' in section 434(1)(a ) of the Act is not equivalent to the word 'omitted'. Neglect to pay a debt on demand is omission to pay without reasonable cause. When a debt is bona fide disputed by the alleged debtor, there is no neglect to pay". In Smt. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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