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TMI Blog2010 (12) TMI 1064X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent-company has filed its affidavit-in-sur-rejoinder on April 5, 2010, to which affidavit-in-sur-rejoinder is filed on behalf of the petitioner on May 10, 2010. 3. Since the pleadings of the parties are completed, the petition is taken up for hearing. 4. Mr. S.N. Soparkar, learned senior counsel with Mrs. Swati S. Soparkar, learned advocate appeared for the petitioner. He submitted that the petitioner has been carrying on the business with the respondent-company for the last many years and a running account for the same is being maintained in the books of account of the petitioner. All the payments made by the company for the supplies are duly credited to its accounts. At the request and pursuant to various oral orders placed by the company with the petitioner during the financial year ended on March 31, 2007, the petitioner had supplied various materials to the company. Against the said supplies, the petitioner had raised various invoices from time to time for the orders placed. The details of the unpaid invoices along with the copy of the unpaid invoices are produced on the record of this petition. Along with the outstanding opening balance, the total dues at the end of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h its advocate a statutory notice under sections 433 and 434 of the Companies Act, 1956, on November 27, 2008, calling upon the company to pay to the petitioner the principal amount of Rs.46,84,094 along with interest at 18 per cent. per annum. The said notice was duly served at the registered office of the company on November 29, 2008. Though the company gave its interim reply on December 10, 2008, seeking time to give a detailed reply to the statutory notice, no reply was received either by the petitioner or by its advocate. The petitioner, therefore, had reason to believe that the company has lost its substratum and has ceased to carry on its business and was unable to pay its debts. The petitioner was also of the view that the company is commercially insolvent and is unable to discharge its debts in normal course of business. It is, therefore, in the interest of the creditors of the company to allow the company to function. It would, therefore, be just, necessary and expedient for protecting the interest of the company that the winding up order be passed. 7. In the affidavit-in-reply filed on behalf of the respondent-company, detailed background facts are given with a view to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... huge amounts of money by giving fake resolutions to the bank of the company, by giving advances to various parties purportedly for the work to be executed by the company though no such work was being executed by the company, by making payment of large amounts to labour contractors for jobs which were not that of the company, by withdrawing amounts from the account of the company to meet their personal expenses, by making payments towards invoices of suppliers of material, though no such material was ever supplied to the company. It is alleged in the affidavition-reply that the petitioner was also involved and was a beneficiary of the some of the nebulous, illegal activities and the large scale diversion/siphoning away of funds of the company done by Shri Ushakant Patel and Dipen Patel, directors of the company who were then in effective management and day-to-day control of the affairs of the company. 10. Mr. Vakil further submitted that all the accounts of the company up to the financial year ending March 31, 2006 and its tax returns were signed by Shri Ushakant Patel and/or Dipen Patel. Since the incorporation of the company in the year 1984 up to March 2006, the company's profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, Shri Bhailalbhai Patel addressed/exchanged necessary correspondence with the banks of the company. Shri Bhailalbhai Patel also issued various letters to Shri Ushakant Patel and Dipen Patel giving instructions to them for not indulging in any financial commitment without prior instructions of Bhailalbhai Patel. 12. Mr. Vakil further submitted that since Shri Bhailalbhai Patel had started taking actions against Shri Ushakant Patel and Shri Dipen Patel, they filed Company Petition No. 79 of 2007 before the Company Law Board, Principal Bench, New Delhi on June 6, 2007, under sections 397 and 398 of the Act. A detailed reply was filed by Shri Bhailalbhai Patel in the said company petition. The Company Law Board by its final judgment and order dated December 10, 2008, allowed the said company petition to the extent and in the manner indicated in paragraphs 13 and 14 of the judgment. In so far as paragraph 13 of the said final judgment and order dated December 10, 2008, is concerned, certain directions were issued considering the fact that there are allegations and counter allegations. Since the allegations of siphoning off of funds by the petitioners remained uncontroverted, the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Dipen Patel have siphoned off a sum of Rs. 87,98,494 (during the period April 1, 2006 to March 13, 2007). It was further stated in the said report that Shri Ushakant Patel and Dipen Patel have made payments to suppliers for the alleged invoices but there has not been actual delivery of goods which were the subject-matter of the said invoices. None of the delivery challans of the petitioner was forming the subject-matter of the said report dated March 31, 2009. It has also come on record that being aggrieved by the final judgment and order dated February 16, 2009, of this court dismissing O. J. Appeal No. 5 of 2009 and Civil Application No. 33 of 2009, Shri Ushakant Patel and Dipen Patel have preferred before the hon'ble Supreme Court, Special Leave Petitions Nos. 8506 and 8507 of 2009 wherein, interim order was passed restraining the company from taking further steps under the report dated March 31, 2009, of M/s. Mulani Kajrekar and Co. The said special leave petitions are still pending. 14. Mr. Vakil further submitted that the company had appointed one M/s. G.M. Choksi and Co., chartered accountants, to carry out special audit of the affairs of the company for the two financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Dipen Patel were in effective control of the day-to-day management and the affairs of the company. Towards invoices against which, in fact, there was no delivery of any material to the company. The aggregate payment of Rs. 81,58,250 includes the amount of Rs. 33,13,761 paid to the petitioner for the invoices raised but for which the material was not supplied to the company. In addition to that, payments aggregating to Rs. 19,99,782 were made to the petitioner through its associate concerns, viz., D. S. Enterprise, Arihant Enterprise and Alpha Enterprise during the financial years 2004-05, 2005-06 and 2006-07 for which the invoices were raised but the material was not supplied to the company. Thus, in aggregate, the payments of Rs. 53,13,543 were made to the petitioner and its associate concerns for which the material was not supplied to the company. It is, therefore, contended that an amount of Rs. 46,84,094 claimed to be remaining outstanding by the petitioner is in fact not payable, but in fact a sum of Rs. 6,29,451 becomes recoverable from the petitioner and its associate concerns by the company. 17. Mr. Vakil further submitted that the respondent-company has denied that eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings taken out by both the groups of the directors before the Company Law Board as well as before this court and the apex court. The petitioner is not connected with any of these internal disputes and the aforesaid proceedings between them. He has further submitted that the respondent-company, in its effort to establish the baseless links between the events of their internal disputes made various contradictory statements. The respondent-company has taken a contention contradicting its own audited balance-sheet as at March 31, 2007, which it has filed with the office of the Registrar of Companies and hence, a document of public record. The respondent-company questions the source of the audited balance-sheet as on March 31, 2007, at the time of filing the current petition, i.e., May, 2009. The respondent-company is statutorily required to file its annual accounts with the office of the Registrar of Companies within a stipulated period and the petitioner has clearly obtained the same from the said office vide search carried out in April, 2009. The petitioner has pointed out that the respondent-company has acknowledged its debt to the present petitioner with the amount equivalent to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to give the detailed list of creditors in this balance-sheet as at June 30, 2007. It would indicate the name of the present petitioner in its books of account. Since the name of the petitioning creditor as well as the outstanding amount are already indicated in the balance-sheet as at March 31, 2007 and no payment has been made to the petitioner after March 31, 2007, it is only logical that the said amount has to be reflected in the books of account of the respondent-company. This substantiates the contention of the petitioner-company that the respondent-company has adopted dishonest attitude and all false and frivolous grounds were raised to dispute its liability to pay the acknowledged outstanding dues of the petitioner. 21. Lastly, Mr. Soparkar submitted that the respondent-company must be presumed to be unable to pay its outstanding debt as it has not made the payment to the petitioner for its legitimate dues even after statutory notice having been served and an opportunity granted to prove its bona fides. He has, therefore, submitted that it is just and proper and in the interest of justice that the petition be allowed and the respondent-company be wound up. 22. On the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alsely corelating the statements, averments and submissions made in the reply with respect to lorry receipts, delivery challans, invoices, etc., for the period from April 1, 2006 to December 31, 2006, on the one hand and the invoices, delivery challans, etc., for the period from January, 2007 to March 13, 2007, on the other hand. 24. Mr. Vakil has also referred to the affidavit-in-sur-rejoinder wherein details of the profitability of the company since the financial year 2003-04 and up to March 31, 2010, are given. The same clearly indicates that during the period from 1984 to 2006 (i.e., 23 years), when Shri Ushakant Patel and Dipen Patel were in charge, the company made an aggregate profit of Rs.37.05 lakhs at an average of Rs. 1.61 lakhs per year. On the other hand, since the directors, B. B. Patel and Pradeep Shringarpure from December 2006, the company has made profits of Rs. 282.84 lakhs at an average of Rs.70.71 lakhs per year. The company has turned the corner and is making rapid progress in its business. The operations are now wide spread in different states, viz., Maharashtra, Uttar Pradesh, Chattisgarh, Delhi apart from Gujarat. The work on hand at present is approximate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong as there is any possibility of resurrecting the company. It would not be right to say that creditors can insist on winding up of the company by court as a matter of right if the position of the company is such that it would be unable to pay its debts to them even if the company can be resurrected. When the persons to whom the company becomes indebted enter into dealings with the company, they do so because they hope to make profits out of the transactions with the company in the usual course of business. It is an incidental risk and an occupational hazard for the persons who enter into such dealings which they undertake in order to earn profits. In fact, it is possible that in the course of their dealings for several years, they would have made huge profits out of the transactions entered into with the company. It would not, therefore, be right to wind up the company merely because the company is unable to pay its debts so long as it can be resurrected by a scheme or arrangement. (ii )In the case of Rishi Enterprises, In re [1992] 73 Comp Cas 271 , (Guj), the court while reiterating the above propositions, held that the petitioning creditors have no absolute right to insist on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... summary suit filed under Order 37 of the Code of Civil Procedure, 1908, are required to be considered. It is very helpful to draw upon the analogy of a summary suit under Order 37 of the Code of Civil Procedure, 1908. 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. Reliance is placed on the decision of the Delhi High Court in the case of Sanjay Khanna v. Discovery Communications India [2003] 41 SCL 202 . The basic defence raised by the company is that the company has procured material from the petitioning creditor under the 11 invoices during the period from January 16, 2007 to March 13, 2007. However, such procurement of material by itself and ipso facto does not entitle the petitioning creditor to a winding up order nor would the court simply on the basis of the procurement of material by the company under the 11 invoices proceeds to wind up the company. The said material was procured by the company through Shri Bhailalbhai Patel who had just entered/taken control of the company's affairs and its day-to-day management from D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in collusion and connivance with third parties, including the petitioning creditor. If any such actions were taken by the company, the same would be considered to be in breach of the order dated April 20, 2009, passed by the Supreme Court. 27. An allegation is also required to be seen as to whether the company through Shri Bhailalbhai Patel has got any prima facie evidence of the involvement of the petitioning creditor in the matter of siphoning off the fund of the company during the period of May, 2007. The same was alleged in the affidavit-in-reply filed by the company in the petition before the Company Law Board. The Company Law Board's final judgment and order was passed on December 10, 2008. The chartered accountant, M/s. Mulani Kajrekar and Co.'s, report for the period from April 1, 2006 to March 13, 2007, came on March 31, 2009. The report of G. M. Choksi and Co., for the period of two years prior thereto came around July 18, 2009. The apex court has, by its order dated April 20, 2009, restrained the company from taking any further steps pursuant to the report dated March 31, 2009, prepared under paragraph 13 of the Company Law Board's final judgment and order dated Decem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has set up a bona fide case of substance which is likely to succeed in point of law by adducing prima facie proof of the facts on which its defence depends. The company had clearly set up a bona fide case by producing prima facie evidence of its defence. The petition for winding up had been filed to pressurise the company to repay. 29. Even with regard to the issue regarding confirmed debt raised by the petitioning creditor, the company is able to raise a dispute to the effect that the company has acknowledged the debt in the audited balance-sheet of the company as on March 31, 2007 and a copy of such audited balance-sheet was procured by the petitioning creditor while taking search of the Registrar of Companies's record in April, 2009. The company's defence is that the petitioning creditor has made a false statement on oath in the matter of procuring the copy of the audited balance-sheet from the records of the Registrar of Companies in April, 2009. As till April 2009, the company had not filed the said audited balance-sheet with the office of the Registrar of Companies. The audited balance-sheet as on March 31, 2007, annexed by the petitioning creditor is the one which was filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been instituted mala fide at the behest of Shri Ushakant Patel and Dipen Patel with a view to circumvent the orders of the apex court, this court as well as the Company Law Board. It might also be instituted mala fide with a view to frustrate the various proceedings pending either before the apex court, this court and the Company Law Board. The object of the petition might be to upset and disturb the working and the growth of the company, at the instance of the directors who are alleged to have siphoned off huge monies of the company under the umbrella of the orders that may be passed in the present petition. 33. Apart from this, the company is undoubtedly making profits and in fact, the profits have increased manifold since January, 2007 when the day-to-day management and control came in the hands of Shri Bhailalbhai Patel. The company also said to have work orders on hand of more than 3.5 crores. There appears to be no risk of the company being mismanaged as the order dated May 5, 2009, of the apex court has put certain restrictions. The expenses are being vetted by a chartered accountant appointed under the order dated May 5, 2009, of the apex court. The petition, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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