TMI Blog2002 (12) TMI 499X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Respondent-Company for a sum of Rs. 9,89,888.86. Mention has also been made to the respondent s letter dated 23-12-1997 whereby the Petitioner was notified of discrepancies including insufficient and deficient supply of material and poor quality of material. A demand for a Credit Note was made by the Respondent-company and according to it Debit Note for Rs. 7,93,430.40 was made on 20-12-1997. Paragraph 15 of the Reply refers to a Debit Note dated 17-12-1998 which reads as under : "GBS/MISC-DN/O18 17-12-1998 Debit Note M/s. Madhya Pradesh Iron Steel Co., Kanchenjunga , 9th Floor, K18, Barakhamba Road, New Delhi-110001. Dear Sir, We debited your account for Rs. 6910210.86P (Rs. Sixty nine lakhs ten thousand two hundred ten paisa eighty six only), towards the details given below : Sl. No.ItemAmount (Rs.) 1.Excess paid to procure at risk cost of MISC on pending orders as on 5-1-1998 680 mt Rs. 3350.00 pmt22,78,000.00 2.Cost of inconvenience 02% PM of value of orders (pending as on 5-11-1998 380MT Rs. 22,750 =Rs. 86,45,000.00 300MT Rs. 19,500 = Rs. 58,50,000.00 Rs. 1,44,95,000 2% =2,89,900.00 3.Cost of RP by our custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Court and be held to the credit of the suit, if any is pending, or likely to be filed in the immediate future. Nishal Enterprises v. Apte Amalgamations Ltd. [Civil Appeal No. 720 of 1999 arising out of SLP (C) No. 14096 of 1998 dated 5-2-1999] decided by the Hon ble Supreme Court. ( 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. The contention of Mr. Krishnamani, that the petition should be rejected since a civil suit has been filed, is per se not appealing. Indubitably, his contention that if the Respondents were to obtain Leave to Defend in the pending summary suit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment Corpn. of Uttar Pradesh s case ( supra ) to the effect that since the claim in those proceedings was also the subject-matter of the ongoing Arbitration, therefore, there was no definiteness about it. This really vindicates the view taken by me in Prime Century City Development (P.) Ltd. s case ( supra ). The Hon ble Supreme Court did not intend to state that wherever arbitration proceedings is pending the winding up petition could not be maintained. Instead, if the debt or dues could be determined only through arbitration, there would logically be no debt available for sustaining winding up proceedings. As has been held in Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. [1999] 22 SCL 156 (SC), "the claim in a petition for winding up is not for money. The petition filed under the Companies Act would be to the effect that the company has become commercially insolvent and, therefore, should be wound-up. The power to order winding up of a company is contained under the companies Act and is conferred on the court." Even if an Arbitration Clause submits between the parties, this Court has enfetter powers to entertain these winding up petitions. The position would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nonetheless be looked into to defeat the petition. 6. I shall first deal with the consequences of the Respondent s failure to send a Reply to the statutory notice. A perusal of the Precedents on this point do not indicate that such failure inexorably leads to the conclusion that winding up orders must unvariably be passed. From my understanding of the judgments of my Learned Sister Hon ble Ms. Usha Mehra in Mayar Traders Ltd. v. Akhi Services Ltd. [1993] 52 Delhi Law Times 577 and G.K.W. Ltd. v. Shriram Bearings Ltd. AIR 1999 Delhi 27, she had taken the failure to reply to the notice as an important factor in determining whether a bona fide defence had been put forward. In the circumstances of both the cases, she preferred to view the defence as an afterthought and as being bereft of bona fide . In CP 220 of 2001 entitled H.B. Stock Holdings Ltd. v. Associated Infotech Ltd. , I have favoured the opinion that where no response had been made to the statutory notice the Respondent-Company runs the risk of a winding up petition being admitted for hearing at the very threshold. Normally, the company Judge considers it prudent in the first instance to issue notice to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s where the respondent-company is suffering from transient liquidity problems, although its asset base is sufficiently strong to whether a charge from claimants. The company judge would in such circumstances prod and push the respondent-company to clear its outstandings but would be extremely reluctant to pronounce its civil death without affording it a reasonable time to resuscitate its resources. It is for these reasons that the Company Court would invariably investigate the well being of the company, its asset base and its substratum. However, the contention of Mr. Kaul to the effect that it should be categorically pleaded in the winding up petition that the substratum of the company has been eroded appears to me to overstate the significance of this factum. In considering the phrase that the substratum of the Respondent-Company should have been eroded, the court implements the duties and obligations cast upon it by clause ( c ) of sub-section (1) of section 434 of the Act. 8. The defence to the winding up petition would therefore have to be considered on merits. Both parties rely on the minutes of the meeting held by them on 12-8-1998 which inter alia read as follows : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also been drawn by Mr. Sharma to the Minutes of the meeting held between the parties on 17-11-1997 which record that the "total outstandings shall be brought down to a level of 60/65 lakhs by 31-3-1998; and MPISC confirms to adhere to supply schedule as per GBS requirement." This is clearly a significant and specific affirmation of the fact that a revolving credit of Rs. 60,00,000 to Rs. 65,00,000 had been agreed upon between the parties. It annihilates the contention of the Respondent that this amount was set inside because the parties had yet to decide on the respondents claim due to defective supplies. At this stage it is consequently not possible to give any weightage to the extraordinarily exorbitant debit note of Rs. 69,10,210 unilaterally raised by the respondent. 10. Nonetheless, the fact remains that the respondent s complaints as to defective supplies cannot be seen as an after-thought or a counterblast to the winding up petition since they have been raised almost contemporaneous with the petitioner s demand for money. The defence therefore, does not fall in the category of mere moonshine. There does appear to be some substance in the respondent s complaints pertainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (DGM Mktd.). The samples submitted were cleared by the Q.C. Deptt. of M/s. M.P. Iron Steel Co. Till date they have not lifted the rejected material lying at our works. Inspite of various assurances given to us by Sh. B.M. Prasad from time to time, no commercial settlement has come forward from the Company. Our customer suffered a huge loss in exports to U.S.A. because of defective material of EN-1A Plain Leaded supplied to us by M/s. M.P. Iron Steel Co. The customer has withheld our full payment of aprox. Rs. 2.50 lakhs on account of above facts. 3. M/s. M.P. Iron Steel Co. has charged Local Sales Tax @ 3 per cent on the Invoices raised. But till date we have not yet received Form ST-14 of Aprox. Sales Tax value of Rs. 1.00 lakhs. In the past we have suffered during assessment of Sales Tax due to non-receipt of ST Form due from M/s. M.P. Iron Steel Co. and had to deposit additional Sales Tax." 2. Mr. Kaul s contention is that only the first point, viz. the standing of surety, does not subsist as on date. It is his contention that credit notes aggregating approximately Rs. 4.36 lakhs still remain to be settled between the parties. In addition thereto a sum of app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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