TMI Blog2004 (10) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness dealings. During the course of their such business dealings, petitioner, who is manufacturer of Polythene Insulated Jelly Filled cables (hereinafter referred to as PIJF cables ) supplied these cables to the respondent. These in turn were supplied by the respondent to HFCL Infotel Limited. 3. At the time of hearing, it was not disputed between the parties that goods of the value of Rs. 7,14,15,554 were supplied by the petitioner to the respondent. Against those, payments have been made from time to time. Now the trouble starts. Petitioner claims a balance outstanding from the respondent in the sum of Rs. 98,37,982. Whereas, no amount is due and payable according to the respondent. Rather, as per the respondent, amount is payable by the petitioner to it because of the defective material supplied, as is evident from the letter dated 15-1-2003, received from its purchaser to whom the material purchased from the petitioner was being supplied by it (the respondent). 4. It is further case of the respondent that vide Annexure R-1, dated 27-2-2003, this position was highlighted to the petitioner with reference to the terms and conditions subject to which purchase orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en up for hearing. . . ." 8. For the first time after having put in appearance and having paid sum of Rs. 25 lakhs in terms of the above order, plea of goods being defective was raised on 27-2-2003. As such, no benefit can be derived from it so- called stand that the material supplied was defective. Along with reply filed to the Company Petition by the respondent, an application under section 8 of the Arbitration and Conciliation Act, 1996, was also filed being Company Application No. 7 of 2003. According to the respondent, matter was referable for arbitration. After having been put to notice, reply has been filed and this application has been contested and resisted on behalf of the petitioner. 9. When matter came up before the Court on 27-3-2003, a sum of Rs. 72,10,855 was tendered in Court by means of Bank Draft favouring Registrar General of this Court. Following order was passed on this dated : "When this matter came up for consideration today and before hearing could commence, a bank draft bearing No. 527585 dated 26-3-2003 issued by Corporation Bank, Delhi Caps in favour of its Shimla Branch in the sum of Rs. 72,10,855 favouring Registrar General of this Court has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties in this case, there is bona fide dispute or not. Similarly, whether because of not replying to the notice under section 433 of the Companies Act, respondent-company is liable to be wound up by raising presumption under section 434 thereof. 12. Supply of goods and payments being made from time to time, as noted hereinabove, is not disputed. Even Annexures P-2 to P-4 were not disputed at the time of hearing on behalf of the respondent. What is disputed, is that because of inferior quality of goods, amount is not payable to the petitioner as per terms and conditions of the supply orders, subject to which the goods were purchased by the respondent. Though these terms and conditions were not accepted by the petitioner, still in the alternative it was pointed out that even if those are treated as part and parcel of the purchase orders, still no benefit can be derived by the respondent. With a view to support the plea that the supply was subject to terms and conditions accompanying the purchase orders, reference needs to be made to Annexure R-7. In the purchase order, Note No. 4 reads as under : "4. Terms and conditions are enclosed herewith." 13. Terms and condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detected even after the issue of G.R. Note will make the supplier liable and constitute cause of action as provided in the clause 2 above. 9. Tax will be deducted at source wherever applicable. ACCEPTANCE If we do not hear anything from you within 10 days from the dispatch of the order shall be deemed to have been accepted. PRICE Except as otherwise agreed in writing your price shall remain firm during the period of supply. PACKING Material should be securely packed for Rail/Road transit to reach final destination of the consignee in safe and sound condition. CANCELLATION We reserve the right to cancel the order in part or in full without liability in event of failure to deliver the goods within the time and/or according to the specifications and/or terms and conditions specified in the order. PAYMENT (1) Payment prior to inspection of material shall not constitute an acceptance thereof. (2) If the quantity received is in excess of the quantity ordered, payment will be made only for the accepted quantity. (3) Bill in quadruplicate along with the original receipted challan must be submitted for payment to the Accounts. REJECTED MATERIAL All rejected mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as payable by the respondent to the petitioner, respondent was in a position to liquidate. Language of the order dated 9-1-2003 does not prevent this Court to see its effect and further come to the conclusion whether by tendering Rs. 25,00,000 it accepted the liability or admitted to be indebted to the respondent to call its winding up. 17. Deposit of the amount on 27-3-2003 by the respondent is indicative of the fact that it is commercially and financially on sound footing. As such, to say that the plea of bond fide dispute being there is merely a camouflage, is not correct. Similar was the stand of Shri Kanwar regarding respondent being as a going as well as a sound concern providing employment to numerous persons. Per Shri Kanwar, respondent s financial worth has nothing to do with its inability to liquidate its liabilities. Reference was made to a number of decisions to advance the plea that there is no bona fide dispute in the facts and circumstances of this case, and even if it be assumed for the sake of argument that the respondent is commercially solvent company, still in the background of admitted facts of this case, order of winding up needs to be passed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g there between the parties, this winding up petition cannot be maintained by the petitioner and the matter needs to be dealt with by allowing the prayer made in Company Application No. 7 of 2003. Reply to notice under section 433 of the Companies Act, having not been sent by his client by itself cannot be made a ground for allowing this petition, as per learned Counsel for the respondent. 22. Petitioner claimed to have supplied material, i.e., PIJF cables to the satisfaction of the respondent. It is purely a question of fact. In view of the terms and conditions of the purchase order extracted hereinabove, materials supplied by the petitioner to the respondent were subject to final acceptance after physical inspection. And respondent was to give guarantee as regards performance of goods supplied and also guarantee against sub-standard quality of materials, manufacturing and other defects whether manufactured by it or not. Any of the defects as mentioned above being detected even after issue of material would make the supplier liable and constitute cause of action as provided in clause 2. 23. This is in the nature of performance guarantee on the part of the petitioner qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgments of Texcon Energies case ( supra ) and Hind Hosiery Mills (P.) Ltd. s case ( supra ) , are concerned, both decisions are on their own facts, as such they are not helpful to the case of the petitioner in any manner. 29. So far decision in the case of DLF Industries Ltd. ( supra ) is concerned, on the facts of that case after examining as to how the matter is to be dealt with, it was observed as under : "Where debt is undisputed, the Court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt; a winding up petition is a perfectly proper remedy for enforcing a just debt but it is not the normal alternative to the ordinary procedure. Propriety does not affect the power but its exercise; if however the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the company; if a debt is bona fide disputed, there cannot be a neglect to pay within the meaning of section 434 of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into application; the petition presented ostensibly for a winding up order but really ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time to pay the dues, failing which the petition was to be advertised." (p. 726) 31. In the instant case, it is only on receipt of intimation from its purchaser by the respondent that the payments have been withheld. Otherwise admittedly substantial amount was paid till this complaint. In case respondent was unable to pay debt, it would not have made any payment as admitted between the parties and noted hereinabove. 32. Respondent is not commercially viable, for this reliance was placed by Mr. Kanwar on Ranbaxy Laboratories Ltd. v. M.S. Shoes East (I) Ltd. [l998] 93 Comp. Cas. 296 (Delhi). In this case, it was held that it is only in case where the company has raised a bona fide dispute about its liability to pay that the Court may not entertain the petition for winding up. But in cases where liability is not disputed, nor proposed any scheme for consideration to the Court to show how it intends to pay its admitted debts, the company cannot be permitted to contend that the petition should not be admitted as the company has assets, which if sold will realize more money than due to the petitioner. On these facts it was further held that admittedly company was not ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des this, the dispute as to the quality of goods supplied in the present case being of bona fide nature, this petition is not maintainable. In the instant case, the respondent claims that due to defective goods supplied by the petitioner, as a result of which purchaser from the respondent has issued a debit note against the respondent in respect of the PIJF cables supplied by the petitioner. In these circumstances to say that there is no bona fide dispute between the parties, will not be correct. 37. Whether the goods, i.e. , PIJF cables supplied were of specific standard, quality-wise as per the terms and conditions of the purchase orders, is a question of fact dependent on production of expert evidence by the parties. Such a question cannot in any event be gone into in summary proceedings in this winding up petition. This Court will not investigate into the facts and evidence in depth, as such this petition merits rejection. 38. Suffice it to say in this behalf that keeping in view the defence of the respondent regarding defective goods supplied found by the end user, i.e., purchaser from the respondent, and also keeping in view terms and conditions of the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ris Banking Corporation 1874 L.R. 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 contended that the work had not been done properly was not allowed. ( See In re, Brighton Club and Norfold Hotel Co. Ltd. 1865 35 Beav. 204). Where the debt is undisputed the Court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt. [ See In re A Company [1894] 94 S.J. 369; [1894] 2 Ch. 349 (Ch.D.)]. Where, however, there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the Court will make a winding up order without requiring the creditor to quantify the debt precisely. [ See In re Tweeds Garages Ltd. [1962] Ch. 406; [1962] Comp. Cas. 795 (Ch.D.)]. The principles on which the Court acts are first that the defence of the company is in good faith and one of the substance, secondly, the defence is likely to succeed in point of law, and, thirdly, the company adduces prima facie proof the facts on which the defence depends. Another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, are first that the defence of the company is in good faith and one of the substance, secondly, the defence is likely to succeed in point of law, and thirdly the company adduces prima facie proof on the facts on which the defence depends. 42. In Tata Iron Steel Co. v. Micro Forge (India) Ltd. [2001] 104 Comp. Cas. 533 1 (Guj.) amongst other things it was observed that in a case of disputed debt or a disputed question of fact, the Company Court would stay its hands and it would be for the parties to get the dispute adjudicated in a competent Civil Court as it would require leading of evidence, documentary as well as oral and its appreciation, which is the domain of the original Civil Court. A bona fide dispute over a debt is a question depending upon the factual scenario of a given case. Where there is a bona fide dispute, company cannot be said to have neglected to pay on a statutory demand. Thus, the Division Bench allowed the appeal and quashed the order of company judge on winding up petition and the resultant directions being not warranted and justified. 43. In Praneet Enviroquips (P.) Ltd. v. Vishal Papertech (India) Ltd. [1999] 4 Comp. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the respondent to comply with the statutory notice and in not sending any replies to the communications already given by the petitioner-company to the respondent-company would not mean that the respondent has admitted the liability. The question which has to be decided in order to bring about the enforcement of the deeming provisions of section 434 of the Companies Act is whether there exists any debt or not which the respondent-company is liable to pay to the petitioner. In case there is a bona fide dispute about that debt, the question of applying the deeming provision would not arise because unless and until the Court has, prima facie, come to the conclusion that there exists a debt which the respondent is liable to pay to the petitioner the statutory presumption that the company has neglected to pay on receipt of the statutory notice would not come into force. In the present case, it is quite evident that there is a bona fide dispute raised with regard to the liability of the respondent-company." (p. 613) 48. Reliance placed on behalf of the petitioner to Max India Ltd. v. Unicoat Tapes (P.) Ltd. [1998] 94 Comp. Cas. 405 (Punj. Har.), does not advance its ..... X X X X Extracts X X X X X X X X Extracts X X X X
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