9911796707
TMI Blog2015 (11) TMI 1317X X X X Extracts X X X X X X X X Extracts X X X X ..... 50 days of receipt of invoices (135 days+15 buffer days). Beyond this period, the Company would have to pay an interest of 1.5% per month. In case of delay in timely payments, beyond this specified period, the contract allowed the petitioner the unrestricted right to stop any/ all pending supplies or order. In or about May 6, 2011, the Petitioner and said company entered into another agreement. The said company was appointed as the non-exclusive distributor and reseller of books under the 'Princeton Review' in addition to the other books mentioned in the previous agreement. This agreement was termed as "Distributor Agreement-Princeton" with no change in scheme of payment. The respective contracts were renewed every year till December, 2013 with modifications by Addendum were brought in the years 2010, 2011, 2012 and 2013. The original payment structure, however, was retained and reiterated in every addendum. The dispute between the parties arose during settlement of accounts. Matter of unsettled accounts had been first intimated by the petitioner to the said company on February 26, 2013 and then further demands were made. On March 6, 2013 the Company in its reply did not dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. The company was compelled to accept front list books and books which had no such market. The petitioners caused a breach of contract to the extent that it created a parallel supply of distributors in the north and the eastern zone (from where the said companies were mainly operating) and so their position was jeopardized. On top of this, since the release date was delayed by 5 days the company was not able to compete with the competitors expeditiously. These caused enormous loss or damage to the company. Moreover, they claimed the untimely and delayed payment from the customers coupled with failure to resume the supply of books have seriously affected the business of the company. The company submits that under such circumstances attempts were made by the company to return the books but there was either delay in confirming the return of books or failure to confirm at all that had resulted in failure to have the accounts reconciled. It is submitted that if the accounts are reconciled and stocks of unsold books are taken into consideration then no amount would be found due and payable by the company to the petitioner. The said company denied that it was liable to pay 1.38 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to leave to sign judgment and the Said company is not entitled to leave to defend. (e) If the Said company has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the Plain- tiff is entitled to leave to sign judgment, the Court may protect the Plaintiff by only allowing the defence to proceed if the amount claimed is paid into Court or otherwise se- cured and give leave to the Said company on such condition, and thereby show mercy to the Said company by enabling him to try to. prove a defence". In Santosh Kumar v. Bhai Mool Singh reported at AIR 1958 SC 321, it was observed by the court:- "Taken by and large, the object is to see that the said company does not unnecessarily prolong the litigation and prevent the plaintiff from obtaining an early decree by raising untenable and frivolous defences in a class of cases where speedy decisions are desirable in the interests of trade and commerce. In general, therefore, the test is to see whether the defence raises a real Issue and not a sham one, in the sense that, if the facts alleged by the said company are established, there would be a good, or even a plausible, defence on those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Ltd. vs. Hirjee Mills Ltd. reported at AIR 1955 Bom. 355 'Unable to pay debts' renders a company insolvent. It suggests that the existing assets would be insufficient to meet the existing liabilities however it is not a conclusive test to allow winding up. However, it is also to be noted that commercial solvency is of no relevance if there is failure on the part of the said company to pay the debt amount within 3 weeks from serving the notice and an order of winding up will be asked for by the creditors or petitioner. In such a case, it is not necessary for the court to enquire whether the company is in fact solvent or not, nor can any such enquiry be undertaken by the court. A perusal of the facts of the case becomes essential at this stage to determine whether there exists a bona fide and reasonable dispute regarding the due amount as was held by Palaniswamy, J. in Rajasthan Spinning and Weaving Mills Ltd vs. Texkool Comapny Ltd. reported at [1971] 41 Comp. Cas. 66 (Mad). The Contractual Agreement i.e. both Distributorship Agreement 2009 and Distributorship Agreement- Princeton 2011 categorically lay down the procedure in which the payment is to be made. There has been no cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the learned Counsel appearing on behalf of the company submitted that in receiving a winding up petition quantum of debt needs to be conclusively established. In this regard he has relied upon Juneja Chemical Industries P. Ltd. Vs. Alam Tannery P. Ltd. reported at [2007] 140 Comp Cas 833 (Cal) and in Juneja (supra) the requirement of determination of debt was emphasized in the following words:- "In receiving a winding up petition, not only should the factum of indebtedness be affirmatively established, but the quantum thereof needs also to be conclusively demonstrated. If indebtedness of the company is apparent as to a part of the claim, the company court may receive such part of the petitioner's claim that is free from doubt and require the other, undetermined part to be established elsewhere. Despite the company conveying the overwhelming sense of being a debtor in its letter of June 3, 2004, and a substantial part of the company's defence in response to the statutory notice being thereby discredited, the petitioner has failed to quantify such part of its claim that can be said to be free from doubt. Ordinarily, the cheques issued for Rs. 57-odd lakhs would have gone some dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t times even evaded by the respondents. Moreover, allegations in the replies to the statute notices were vague and without any factual basis as the learned Counsel has placed reliance on Siddharth Automobiles Ltd., In re Vs. Ashok Leyland Ltd., In re reported at [2008] 145 Comp Cas 524 (Cal) for the proposition that once the company has raised the counter-claim the same is required to be decided in a regular suit and the present proceeding is not the proper proceeding for realisation of such amount. In the said decision, the learned Judge found that the adjustment sought by the company was extremely vague and even if any generous estimate is made in favour of the company there would still remain indebtedness in excess of Rs. 1.5 crores. In the instant case, as I have noted earlier that apart from a murmur of adjustment of few lakhs on sales and return basis as sought to be put up as a defence to the claim by relying on emails dated 22nd February, 2013 and 8th January, 2014 there is no clear defence disclosed by the company in this proceeding. Even in reply to the winding up notice, the company did not quantify its debt and the allegations made are vague and devoid of any particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sured that the payments would be back on track provided the company get supplies from 1st June in respect of both the territories. The company never contended that the liability admitted by the company was by mistake. The company has furnished the figure and quantified its liability as Rs. 1.38 crores. Thus, at least on 18th May, 2013 the company has reconciled its account. It is, therefore, no more open to the company to put forward a plea of reconciliation or SOR to deny its liability in so far as the claim of Rs. 1.38 crores is concerned. Since no payment was forthcoming two statutory notices both dated 17th June, 2013 were issued in respect of the distributorship agreement dated 4th September, 2009 and 6th May, 2011. In response to the said statutory notice, the company contended that the company was only an agent and there was no sale of books as such from the petitioner to the company. It was alleged that the petitioner interfered with the business of the company and prevented the company from carrying on its business. The petitioner dumped on the company new or unpopular titles to distribute and the company cannot be held responsible or accountable for distribution and reali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was evident that the service provided by the petitioner was in complete derogation to the distributorship agreement and the emails exchanged between the parties. The learned Counsel has relied upon New Era Furnishers (P.) Ltd. Vs. Indo-Continental Hotels and Resorts Ltd. reported at 68 Comp Cas 208 for the proposition that if the company is able to establish that there were still defects which were not rectified and that was why payment had not been made, could be a reasonable ground for avoiding payment and a winding up petition should not be admitted in such circumstances. It is submitted that if debt is bona fide disputed on substantial ground winding up shall not be entertained as in such a situation there would not be a neglect to pay within the meaning of Section 433(1)(a) of the Companies Act. This argument is made on the basis of ratio laid down by the Hon'ble Supreme Court in Mediquip Systems (P) Ltd. Vs. Proxima Medical System GMBH reported at (2005) 7 SCC 42 and IBA Health (India) Private Limited Vs. Info-Drive Systems SDN. BHD. reported at (2010) 10 SCC 553. It is argued that the sole object of the winding up petition is to recover a sum of Rs. 3,24,28,751 and the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is bona fide disputed, there cannot be "neglect to pay" within the meaning of Section 433(1)(a) of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated. Thirdly, a debt about the liability to pay which at the time of the service of the insolvency notice, there is a bona fide dispute, is not 'due' within the meaning of Section 434(1)(a) and non-payment of the amount of such a bona fide disputed debt cannot be termed as "neglect to pay" the same so as to incur the liability under Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956. Fourthly, one of the considerations in order to determine whether the company is able to pay its debts or not is whether the company is able to meet its liabilities as and when they accrue due. Whether it is commercially solvent means that the company should be in a position to meet its liabilities as and when they arise. 24. The Madras High Court in Tube Investments of India Ltd. vs. Rim and Accessories (P) Ltd. (199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cedure, the Hon'ble Supreme Court also observed that the grounds of dispute must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be mere wrangle. In Oswal Machinery Ltd. v Pipavav Shipyard Ltd. reported at (2012) 173 CC 211 (Guj) it has been held that:- "When the question of examining the defence on the ground that the claim is disputed, arises and it becomes necessary to determine whether the dispute is bona fide and substantial, one of the tests is to find out whether the dispute was raised contemporaneously (immediately when the ground or cause of dispute allegedly arose); or the dispute came to be raised only when the demand for payment came to be made or the statutory notice came to be served and whether it is in nature of afterthought. If it emerges from the facts that the grounds on which the defence is raised and the claim being disputed were never raised at the relevant point in time or until the demand came to be raised or statutory notice came to be served and then suddenly the dispute is raised for the first time upon a claim being pressed and upon the service of notice, such belated dispute may, in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order." (emphasis added) The allegations raised by the said company against the plaintiff are:- a) The petitioner has been pushing for the front list titles and nonselling stock. Without the assent of the company, the petitioner has been sending large quantities of books. b) Developing parallel channels of supply by appointing numerous distributors, in the north and south zone, despite exclusivity or semi-exclusivity with the said company has caused damage to the company. c) Breach of Contract by the petitioner which has caused enormous loss to the said company which would be in excess of 15 crore, resulting from the incongruence in date of new title billing and release date. Therefore, there is difficulty and imbalance of payment schedule. d) Whenever attempt is made to return books, approval is either delayed or not granted. The said company has stated that without his assent the petitioner has been sendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the company and thus causing breach of contract amounting to a loss of 15 crore has no reasonable foundation. The matter regarding return of book s i.e. the RHI books which are in possession of MB at its warehouse in Delhi and Kolkata, has been duly considered by the petitioner in the legal notice issued by the attorney of the petitioner to the said company dated August 4, 2013. In the said notice, a solution has been suggested to SK Mehra with respect to the same. It is however seen that there has not been any confirmation received by the said company when in 2014 email, again the matter of sending the books back to RHI is asked by the company. However, despite the fact that both the distributorship agreements had already terminated owing to the failure or default in making timely payment, and that has also been acknowledged by the said company, the reason to wait for the confirmation of the petitioner seems groundless. . Prior to the issuance of the winding up notice there has been no contemporaneous document and material to show that the company has denied its liability and claimed damages. It has also been seen that the demand notices have been issued by the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd adjustment thereof I admit the petition for a sum of Rs. 60 lakhs. This amount is ascertained on a generous allowance being given to the company of all its grievances for rebate and SOR. The company has not been able to demonstrate before this Court that the Company is solvent enough to pay off the debts assessed in this winding up petition. However, applying the principle in Mechelec (supra) and the other decisions on this point I direct the company to furnish security for a sum of Rs. 60 lakhs to the satisfaction of the Registrar, Original Side, High Court, Calcutta on or before 15th December, 2015 which shall remain valid till the disposal of the arbitration proceeding. In the event such security is furnished the petition will remain permanently stayed. In default, the petition will be advertised once in 'The Statesman' and once in 'Bartaman'. The advertisement should indicate that the matter will appear before Court on the first available working day after the expiry of a period of four weeks from the date of the publications being made. Publication in the official gazette shall stand dispensed with. There shall be no order as to costs at this stage. Urgent xerox certifie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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