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TMI Blog2009 (10) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... ch business group as a going concern and to carry on the business of designing manufacture, selling, exporting of all kinds of watches, time pieces, clocks, chronometers, horological instruments and other devices for measuring time and components, other scientific instruments and musical instruments, jewelry etc., and for that purpose to establish and promote factories and render assistance and services of every kind. The other objects of the respondent company are set out in the memorandum and articles of association which are produced as Annexure-E to the petition. 4. According to the petitioner by order dated 17-10-2001, passed by the Central Government, all the assets and liabilities of the watch business of HMT Limited has been transferred and is vested in the respondent company. The respondent has various units in different places such as Bangalore, Tumkur, Srinagar, Ranibagh and that certain supplies were made by the petitioner to the aforesaid units and Srinagar Unit (HMT Chinar Watches Limited) of the respondent to an extent of Rs. 89,85,249 as on 31-3-2002, in respect of which the payments are due and for which the respondent is also liable to pay interest. 5. That in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent company on 29-4-2002 of all the suppliers whose bills had remained unpaid and one more promise of payment on instalment basis was made, but no action was taken by the respondent company. 7. The Tumkur unit of the respondent company confirmed outstanding amount of Rs. 42,88,889 similarly the Bangalore Unit agreed with the figures stated in the invoices with regard to jewelry supplies and for supply of watch crystals. That Ranibagh unit had wrongly rejected jewels worth Rs. 1,97,716. On 4-5-2002 respondent company issued a reply to legal Notice dated 4-6-2002 in response to which the petitioner gave its rejoinder on 15-5- 2002, copies of which are produced as Annexure-H and J respectively and thereafter one more reply dated 27-5-2005 was issued by the respondent company as per Annexure-K. According to the petitioner, the respondent has failed to pay nearly sixty crores due to small suppliers like the petitioners. By advertisement dated 29-5-2002 issued in the "Times of India" by the Employees Provident Fund Organization, public awareness was given against the purchase of HMT properties and even according to the Central Government, the management of the respondent company lack b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er statement was filed on behalf of the respondent company stating that the petitioner had filed original suit under Order XXXVII of CPC before the XXVI Addl. City Civil Judge, Mayohall Unit, Bangalore for recovery of a sum of Rs. 1,16,47,250 with interest and the same is numbered as O.S. No. 15652/2003. The trial Court has granted leave to defend the respondent company subject to the condition that it would furnish security to the extent of suit claim within one month from 9-12-2003 and being aggrieved by the said direction, respondent had filed W.P. No. 16444/2002, which was disposed of by this Court on 5-7-2004 with a direction to the respondent to furnish a security within two weeks from the date of the said order and that the respondent has complied with the order by furnishing security by offering 10.1844 acres of land at Ranibagh valued at Rs. 14,00,000 per acre approximately. The order of the learned Single Judge in the writ petition was challenged by the petitioner in W.A. No. 3154/2004 which has been dismissed with a direction to the trial Court to dispose of the original suit expeditiously. 10. In response to this further affidavit a counter-affidavit has been filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sly and, therefore, in the face of the suit being decreed, the company petition cannot survive for further consideration. In support of his contention he has relied upon [2004] 1 Comp. LJ 481 (MP) and [2001] 6 Comp. LJ 61 (Bom.). 14. In response to this counsel for the petitioner has submitted that the suit was filed after the filing of the petition and that the judgment and decree in the suit will not affect the relief claimed in the company petition. On the other hand, since the suit has been decreed for a portion of the amount claimed, without prejudice, to that extent at least the liability of the company has to be taken as admitted since no appeal has been filed by the respondent company against the said judgment and decree. In support of his contention that the filing of a company petition would not be affected by any other remedy resorted to by a party, counsel for the petitioner has relied upon Hegde & Golay Ltd. v. State Bank of India [1987] 62 Comp. Cas. 239 (Kar.) and Tube Investments of India Ltd. v. RIM & Accessories (P.) Ltd. 1990 (3) Comp. LJ 322 (Mad.) and other decisions. 15. Before answering the said contention on the maintainability of the company petition it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarding the rate of interest only and therefore, the petition was admitted and an order for advertisement was made and the Official Liquidator was directed to take charge of the assets of the company. 20. In the case of Madhusudan Gordhandas & Co. v. Madhu Woolen Industries (P.) Ltd. AIR 1971 SC 2600 it is stated that whenever the debt is undisputed, the Court will not act upon a defence that the company has ability to pay the debt but the company chooses not to pay that part of debt. The principles on which the Court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends. 21. In fact, after the enforcement of the recovery of debts due to Banks and Financial Institutions Act, 1993 if a proceeding is initiated under the said Act by a bank against a debtor which is a company, then it is held that a winding up petition against the same debtor is not maintainable in the case of Bank of Nova Scotia v. RPG Transmission Ltd. [2003] 114 Comp. Cas. 764 2 (Delhi). However, a Division Bench of this Court has he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Government before an order of winding up can be made. 24. Counsel for the respondent has taken me through the Memorandum and Articles of Association of the respondent-company and also through the Provisions of Industries Development and Regulation Act, 1951 as well as the Government of India (Allocation of Business) Rules. He has also stated that since the respondent company is a "State" within the meaning of Article 12 of the Constitution, it cannot be placed on the same footing as a public company or a private company as defined under section 3 of the Companies Act and has also gone to the extent of submitting that a petition under section 433(e) of the Act is not maintainable in respect of a Government company, as defined under section 617 of the Companies Act. 25. Though the said contentions of the counsel for the respondent shall be considered and answered, counsel for the respondent company ought to have realized that these contentions are outside the scope of the specific jurisdiction of the Company Court dealing with the Companies Act and other allied acts. In the instant case, counsel for the respondent has mainly focused on the maintainability of the petition and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 (Mad.), a Government Company was ordered to be wound up because of its inability to pay its debts, symbolised by the fact that it failed to honour the statutory notice. The Court said that a substantial Government shareholding does not by itself afford security to creditors since the company failed to produce any details of its financial position. This created a presumption of bad financial condition which was raised and an order of winding up was passed. Therefore, the contention of the counsel for the respondent that Government Company within the meaning of section 617 of the Act falls outside the purview of winding up proceedings enunciated under the Companies Act under section 433 read with section 434 and other provisions is rejected. Under the circumstances, a petition under section 433(e) of the Act for winding up of Government company is maintainable and further it is not necessary to issue notice to the Central Government or the State Government as the case may be, while exercising jurisdiction in the matter of winding up of a Government company. As already stated, Article 12 of the Constitution of India has no relevance with regard to the winding up of a Government comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen there is an alternative remedy available which is an abuse of the process of the Court. Therefore, he submits that the petition lacks merits and ought to be dismissed. 32. In reply, counsel for the petitioner has stated that the Original Suit was filed after filing of the company petition and the Judgment and Decree in the suit would not affect the relief claimed in this petition, the company petition has been admitted and advertisement was deferred and instead an enquiry was held and evidence has been recorded. That in the annual returns of the respondent company, the amount due to the petitioner both in principal and interest is shown. The respondent company did not reply to the statutory notice and did not produce any evidence to show that the company is doing well. The reliance placed by the counsel for the respondent on section 434(1)(b ) is misplaced, as the same can be applied after a decree is obtained. But in the instant case, despite there being a decree against the respondent company and the same not being appealed against and in the absence of payment of the petitioner's dues, the case would squarely fall under the category of inability to pay debts. That the evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner ought to be granted. 35. In support of his evidence PW 1 has produced various purchase orders, invoices with regard to the various transactions made with the units of the respondent company cheques issued by the respondent company and the endorsement of the banks with regard to their dishonour and letters confirming the balance payment to be made to the petitioner and documents with regard to re-conciliation of accounts. Ex. P1 is the affidavit filed by PW 1 in examination-in-chief, Ex. P2 to P193 are invoices, purchase orders, vouchers and confirmation of balance, Ex. P94 is with regard to re-conciliation of accounts of the Tumkur Unit of the respondent company which has been confirmed and Ex. P195 to P214 are correspondence, dispatch vouchers, delivery challans fax message and the scheme filed in the High Court. 36. In his cross-examination, PW 1 has stated that it started making supplies to the respondent company sometime in the year 1981-82 and after 2002 there have been no supplies. He has also admitted that certain payments have been received since 1982 in respect of which no claim has been made in the petition. He has also stated that as on 31-3-2003 the claim ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent had to out source the said supplies from the other agencies which has resulted in manufacturing delay and consequential losses. There are discrepancies with regard to the accounts maintained by the petitioner with the units of the respondent company and the petitioner has failed and neglected to come forward for re-conciliation of accounts. 38. In his cross-examination RW 1 has stated that the claim of the petitioners company against the respondent company is approximately a crore and he has admitted that he is liable to pay the outstanding amounts to the petitioner, not as a lump sum but in instalments. He has also stated that the Provident Fund dues of HMT have been cleared and that though the company is running under a loss, it has submitted a revival plan to the Government of India and has also sold properties to discharge long-term liabilities of the company. He has also stated that in the annual report showing names of SSI Units to whom the amounts are due, no provision for payment of interest in the said accounts have been made, though the accounts for the year 2005-06 reflect the outstanding, if any, to the petitioner. Though RW1 has admitted that respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en admitted by order dated 5-9-2005 and it is noted that the respondent has admitted its dues to the petitioner to an extent of Rs. 61,23,608, it disputes the correctness of the balance claimed. 41. What is of significance is the fact that O.S. No. 15652/2003 which was filed by the petitioner after the initiation of the petition for winding up has been decreed and in respect of the amount decreed, no steps have been initiated by the petitioner for realization of the decretal amount whereas the respondent company has offered security for the suit claim by way of immovable property. The fact that the entire suit claim has not been de creed by the trial Court prima facie leads to the conclusion that the claim made by the petitioner either before the trial Court or before this Court is not fully payable by the respondent company. When the respondent company has stated that a revival plan is under way and that the Government of India would come to its rescue and considering the fact that the claim of the petitioner has been crystallized by way of decree of the trial Court only with regard to a portion and in the absence of any stay of the decree from any appellate forum as the responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uit, despite the dismissal of this company petition, the respondent company cannot dispose of or transfer or part with the possession of the immovable property given by way of security until the Judgment and Decree attains finality, without the leave of the Court. In view of the pendency of civil disputes between the parties as to the adjudication of the claim and liability, it cannot be inferred that a prima facie case has been made out that the respondent company is unable to pay its debts, as there is no ascertained debt. 43. The machinery for winding up will not be allowed to be utilized merely as a means for realizing debts due from a company. In fact in Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswamy [1965] 35 Com. Cases 456, the Supreme Court has quoted with approval the following passage from Buckley on the Companies Act by stating that if the debt was bona fide disputed, there cannot be 'neglect to pay' within the meaning of section 434(1)(a) of the Companies Act. 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. Therefore, winding up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e however not applicable to the present case: In the case of P.Y. Parry v. Cynotech Bioproducts (P.) Ltd. [2000] 24 SCL 408 (Kar.), it has been stated that where a dispute is raised by a company regarding amount of debt is not on substantial ground and is only a cloak to hide its inability to pay its debt, the creditor is prima facie entitled to an order of winding up of company. In the instant case since the trial Court has not decreed the entire claim of the petitioner which is also a subject- matter of this company petition in which the liability is not fully admitted, it cannot be said that the dispute with regard to the debt is not bona fide. In the case of Vijay Industries (supra), a distinction has been made between a dispute as regards quantity or quality of supply or such other defences which are available to the purchaser and a case where no such disputes are raised but the question is only with regard to the rate of interest that would be applicable. In the instant case the former situation is applicable to the facts of the present case. 48. In the instant case, in view of the civil disputes between the parties and particularly when the petitioner is not satisfied wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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