TMI Blog2002 (10) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... brant Investment Properties Ltd. [hereinafter referred to as ( the VIPL ) and also referred to as the said company ) for laying and paving heavy duty pavement for 4.50 lakhs sq. ft. using heavy duty pavers as per specifications for a total value of Rs. 5,23,87,500 for its container yard and paid a mobilisation advance of Rs. 10 lakhs with a condition that the said company would perform all obligations in this regard. The respondent-company stood guarantee for the said company and also executed a guarantee dated 25th July, 1997 for the due performance of the terms and conditions in respect of the work entrusted to the said company. Since the petitioner had noticed some defects in the work, by a letter dated 5th November, 1996, it requested the said company to rectify the defects. The said company failed to rectify the defects and so the petitioner intended to take legal action against the respondent for damages. Thereafter after several discussions, a revised design was made by the said company for the work to be done and a revised price was quoted for the total paving of the container yard and requested the petitioner to award the contract to the said company as it had already m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e along with the said company to pay the amount to the extent of Rs. 41,32,631 in view of the guarantee dated 25th March, 1997, executed by the respondent in favour of the petitioner for due performance of the terms and conditions of the contract by the said company. The respondent is also liable to pay Rs. 62.95 lakhs as it had agreed to indemnify the petitioner for any loss, damage, cost etc. Even after the issuance of the statutory notice issued by the petitioner dated 27th September, 1997, the respondent did not pay the amount. The respondent and the said company have become commercially insolvent and unable to pay its debts. It is therefore appropriate that the respondent-company should be wound up. 3. Notice was ordered regarding the maintainability and the respondent has filed a preliminary counter statement. According to the respondent, the name of the company was changed to Besser Concrete Systems Ltd. It is stated that the respondent was incorporated in the year 1995 with the object of manufacturing and marketing concrete blocks and pavers and Vibrant Investments and Properties Ltd. (VIPL), one of the promoters of the respondent-company was enjoying a fiduciary rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in paragraphs V, VI, VII, VIII and IX of the counter-affidavit to plead that R. Ramakrishna has colluded and put up only a sham fight. It is the case of the respondent that it was not the guarantor of the said company and the agreement in question is not enforceable against it and the petition for winding up lacks bona fides and is liable to be dismissed. 4. The petitioner has filed a rejoinder stating that the objections raised in the preliminary counter-affidavit of the respondent are not sustainable. According to the petitioner, the acts of misfeasance and malfeasance by R. Ramakrishna are not matters of consequence of the petitioner who had bona fide commercial transaction with the respondent-company. The averments that there was a collusion between the petitioner and VIPL and that there is an ante-dated agreement were also denied. The contention that the guarantee is a fabricated one is also denied. It is therefore stated that the respondent-company as guarantor to the said company, is liable to pay the money due by the said company to the petitioner. It is the case of the petitioner that R. Ramakrishna being the managing director of the respondent-company has signed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs were sold. He also submitted that the respondent-company has not responded to the notice and sold the pavers. He also referred to the letter dated 25th March, 1996, and the director s report for the year ended 31st March, 1997. He referred to the director s report of the respondent-company dated 1st March, 2000, wherein it has been stated that R. Ramakrishna has resigned during that year and the company has not disputed the guarantee. He further submitted that only in the balance-sheet for the year ended 31st March, 2000 after the petitioner has filed the company petition, the respondent-company has chosen to question the validity and genuineness of the guarantee deed. He also submitted that R. Ramakrishna was a director when the guarantee agreement was signed. He also referred to the director s report for the year ended 31st March, 1997 wherein the company has stated that the respondent manufactured large quantity of unistone interlocking pavers and also referred to the guarantee agreement and the same was accepted in the balance-sheet of the year 1999. He referred to the Board s resolution dated 17th August, 1996 and the resolution dated 18th September, 1996. He also submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antee agreement entered into on March 25,1997 wherein it is stated that a sum of Rs. 41 lakhs was stated to have been paid in respect of the work relating to the development construction of the container yard on the terms and conditions of the intent letter dated 25th March, 1997. He therefore submitted that it is impossible that a sum of Rs. 31.33 lakhs could have been paid on 25th March, 1997 and actually the amounts were stated to have been paid subsequent to that date. He also referred to the letter of intent and submitted that the letter does not mention anything about the guarantee. He also referred to the work order dated 2nd August, 1996 and submitted that in the work order it has not been stated that VIPL was required to give performance guarantee and there is no provision for the guarantee given by the respondent. He therefore submitted that the guarantee agreement is ante-dated. Learned counsel also referred to the amended work order dated 2nd April, 1997 and even in the amended work order there is no reference to the guarantee. He refers to the letter of intend dated 25th March, 1997 and in that there is no reference about the guarantee. He further submitted that a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. 782, wherein it has been held as under (headnote) : "An agreement between a company and a person as banian of the company, that the latter will advance all the necessary funds up to a certain limit and in return would have the sole right to collect all sums due on bills to the company and repay himself the advances so made as also his remuneration, is an instrument which if otherwise binding creates an equitable charge on the company s outstandings for the amount due to the person. Such agreement need not be under company s seal. It is enough if it is in writing and even if such agreement is required to be under seal by the articles of association of the company, if it is affixed with the seal irregularly, the irregularity does not affect the binding character of the agreement : When a document is intended and required to be under seal, a mere defect in respect of the seal does not make the document for all purposes bad and if the court is satisfied that the parties intended and had power to create the charge, incumbrance or a transfer it will give effect to the intention notwithstanding any mistake in or a failure of the attempt to effect it. If further the document is act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by the company was held to be not a bona fide one. 11. Learned counsel also referred to the decision of the Division Bench of this court reported in Deva Sugars Ltd. v. Sicom Ltd. [1997] 89 Comp. Cas. 504 (Mad.), wherein the guarantors liability was dealt with and the court has held as under (headnote) : ". . . Even though the appellant-company was termed as guarantor in the guarantee document, it was also mentioned therein that it would be treated as principal debtor. Further, the loan granted was not in dispute and the execution of the guarantee document was also not in dispute. The demands made by the corporation for the amount due including the statutory notice was not in dispute. Further, even though the statutory notice was addressed to the principal debtor, a specific demand was made even against the guarantor, specifically saying that the contents would be treated as statutory notice under section 434 of the Companies Act against the guarantor also. Despite the statutory notice, admittedly, there was no reply by the appellant guarantor. Nor had any payment been made subsequent to the statutory notice. In the circumstances, it was clear that the appellant-co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitiae to an order for winding up, if he brings his case within the Act. But he must first of all establish that there is a debt owing and secondly, must satisfy the court that the company is unable to pay the same. Where notice is given and the company after the requisite period neglects to pay a debt, then there arises under section 434 a presumption of inability to pay. But here again, the words used are neglects to pay . In either case, that is to say, under section 433 or section 434, if the debt is disputed bona fide , then in that case there is neither inability nor negligence to pay. It will not do for a creditor merely to put forward a claim. The company may not accept it or may dispute either its factum or validity. Where there is a genuine dispute of this description, it cannot be resolved by having recourse to winding up proceeding. But, just as it will not do for a creditor merely to put forward a claim, it will not do for the company to deny a claim recklessly. If the denial of the dispute is neither bona fide nor reasonable, then the court does not lose its power of granting relief by passing a winding up order." (p. 613) 14. Learned counsel for the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1936 All. 401. Babu Lal Rukmanand v. Official Liquidator [1968] 1 Comp. LJ 1/[1969] 39 Comp. Cas. 670 (Raj.). Selangor United Rubber Estates Ltd. v. Cradock (No. 3) [1969] 39 Comp. Cas. 485 (Ch.D). And submitted that where there is a serious dispute as to the fact the party must be referred to the civil court. According to him, the debt is in bona fide dispute and the defence put forward is a substantial one and hence the court will not order winding up of the respondent-company. I am of the view that it is not necessary to burden this judgment by quoting the decisions relied on by learned counsel for the respondent, as the principles are very clear. 16. In February 1996, VIPL submitted a quotation, as seen from the list of dates filed by learned counsel for the petitioner and also submitted its offer for laying and paving heavy duty pavement using heavy duty pavers before the petitioner. Though the petitioner-company has referred to the letter of VIPL of February 1996, and another letter dated 29th February, 1996 in the list of dates, the petitioner has neither referred to the same in the petition, nor produced the same before the court. The petitioner also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract and advance payment for pavers. It is also stated that on 26th March, 1997, and 27th March, 1997, the petitioner had paid to VIPL a total sum of Rs. 41.33 lakhs including a sum of Rs. 7 lakhs earlier paid on 10th July, 1996. On 25th March, 1997, it is alleged that the guarantee agreement was executed by the respondent in favour of the petitioner for the performance of the obligation. In clause 2 of the agreement dated 25th March, 1997, it is stated that the petitioner has paid advance to VIPL of a sum of Rs. 41.33 lakhs in respect of the work relating to the development and construction of the container yard on the basis of the letter of intent dated 25th March, 1997. 18. It is relevant to mention here that even according to the petitioner s own admission, the amounts were paid on two dates, on 26th March, 1997, the sum of Rs. 10 lakhs was paid and another sum of Rs. 21.33 lakhs was paid by way of cheque dated 27th March, 1997. On 1st April, 1997, VIPL executed three agreements, one of them was advance payment for pavers to procure and lay pavers. The agreement says that VIPLs had manufactured ten lakh pavers and also agreed not to sell and dispose of the same. It is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f VIPL to the petitioner wherein there is a reference to the return of the mobilisation advance, and the letters also show that continuous supply of pavers would be ensured in future. 20. A close study of the copies of various documents reveals that either at the time of entering into the contract by the petitioner with VIPL or at the time of issue of the first work order on 2nd August, 1996, the parties have not contemplated any third party guarantee for the performance of the work of VIPL. In the letter of intent issued on 25th March, 1997, by the petitioner in favour of VIPL, there is no reference to third party guarantee. It is also relevant to notice that in the agreement executed on 1st April, 1997 under the caption advance payment for pavers there is also no reference to the third party guarantee and in the agreement also the respondent-company was not a party. Another significant aspect is that in the work order issued on 2nd April, 1997, by the petitioner in favour of VIPL there is no reference to the third party agreement. In the guarantee agreement executed on 25th March, 1997, the respondent refers to the payments made subsequent to the agreement, namely, 26th Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the company has manufactured large quantity of pavers. It is also stated that efforts are made to dispose of them to the other customers. So it is clear that R. Ramakrishna was the chairman and director of the respondent-company on 5th December, 1997 and in the balance sheet it has been stated that the company has not guaranteed any loan and there is no reference to any guarantee at all and it has been certified by the auditor in his report dated 8th October, 1997. The next balance-sheet is for the year ended 1997-98, which was signed in June 1999, during which period R. Ramakrishna was not a director of the respondent-company. There is a reference to the guarantee regarding the satisfactory perform- ance of the pavers, but there is no reference to guarantee for the repay- ment of the advance received by VIPL. It is significant to notice that while in the earlier balance sheet there is no reference made about the agreement, the next balance sheet is for the year 1998-99 and R. Ramak- rishna has resigned from the Board of directors and in that balance- sheet also the respondent-company has referred to the satisfactory performance of the pavers, but there is no reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, these are all matters to be established before the civil court during the trial of the case. I am of the view that the defence raised by the respondent is a bona fide and substantial one. 23. Though there can be no quarrel over the proposition that when a third party deals with the company, it is open to the third party to act with bona fide belief that the person who acted on behalf of the company had a requisite authority to deal with the affairs of the company and the resolution passed in the said company and documents executed by the said person are legitimate and valid, but, the application of the principle would depend upon the facts of each case. In my view, the respondent-company is questioning the existence of the agreement and the genuineness of the same and has raised bona fide grounds leading to suspicious circumstances surrounding the execution of the agreement and hence, it is not open to the petitioner to claim that on the basis of the authority granted by the said company, R. Ramakrishna has acted validly on behalf of the said company. It is not necessary that the agreement should bear the seal of the company, but the question whether the agreement is ..... 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