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Mehras Books Private Limited Versus Random House Publishers India Private Limited.

Winding up petition - settlement of accounts - whether having regard to the emails exchanged it cannot be said that the company is not indebted to the petitioner? - Held that:- Both the agreements namely, the Distributorship Agreement 2009 and the Distributorship Agreement- Princeton 2011 clearly state that the company is a non-exclusive distributor of the petitioners. The company accepts that the said agreements are on a principal to principal basis and the company would be required to pay the .....

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e part of the petitioners to injure the business 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 .....

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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 petitioner with respect to both Distributorship Agreement and Distributorship-Agreement-Princeton on June 17, 2013. In its reply the aforementioned allegations have been made. The said company has not been able to place any material, or document .....

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. The defence set up is illusory. The disputes sought to be raised by the said company is in the nature of afterthought and lacks bona fide and so in the present case the objection and contention cannot be sustained.

In the present case it is evident that the denial by the company is motivated by an intention to evade payment.

It is relevant to note that in the case of Ficom Orgarnics Ltd v. Laffans Petrochemicals Ltd. reported at (1998 (10)440 - HIGH COURT OF GUJARAT), aft .....

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nd the claim made in defence to the action initiated by the petitioner were never raised at the relevant point of time or until the statutory notice was served upon the company. However, considering the plea that if in the arbitration proceeding the company is able to establish return of some books and adjustment thereof admit the petition for a sum of ₹ 60 lakhs. This amount is ascertained on a generous allowance being given to the company of all its grievances for rebate and SOR. The com .....

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Sarathi Dasgupta, Mr. Souvik Bhadra, Mr. Arijit Basu. For The Respondent : Mr. Jishnu Chowdhury, Mr. Aritra Basu Soumen Sen, J.:- Random House Publishers India Pvt. Ltd., the petitioner, has filed this application praying for winding up of the Mehras Books Pvt. Ltd. (hereinafter referred to as the said company ). The petitioner is engaged in publishing, printing, and marketing of books. On September 4, 2009 the petitioner has entered into a Distributorship Agreement with the said company whereby .....

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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 .....

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further demands were made. On March 6, 2013 the Company in its reply did not dispute its liability but only raises issues with regard to the credit notes. According to the petitioner, towards the end of May 2013, the said company owed an amount of 1.38 crores approximately to the petitioner. In view of failure to pay the outstanding dues, two demand notices were issued and served to the company on January 17, 2013 in respect of the aforesaid two agreements. A combined reply to both the demand n .....

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de by the said company on August 13, 2013. The petitioner served statutory notices upon the said company on August 26, 2013 and followed it up. This was replied to by the Company on September 3, 2013 The petitioner is a creditor of the company. It is submitted by the petitioner that repeated demands were made to the said company for the payment of the debt but the said company raised frivolous pleas in order to avoid and delay payment. The petitioner contended that the company was not in a posit .....

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practice of the trade. The company has also stated that the property in the goods did not pass on to them unless they were able to sell the goods. The allegation put forth by the said company against the petitioner was that the quantities of books supplied were without the assent of the company. It was also contended that the supply of books was not made according to the order placed inasmuch as the books, which had no market at all, used to be dumped in the warehouse of the company. The compan .....

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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 .....

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gineers and Manufacturers Vs. M/s Basic Equipments Corporation reported at AIR 1977 SC 577 the matter of grant to leave, under Order 37 of the Civil Procedure Court has been discussed. In Mechelec (supra) the suit was filed by the Plaintiff, a partnership firm against the respondent, due to the dishonour of cheque, issued by the respondent towards consideration for the goods supplied. The appellate court while discussing whether it would be appropriate for the High court to interfere with the or .....

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y is entitled to unconditional leave to defend. (b) If the Said company raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the Said company is entitled to unconditional leave to defend. (c) If the Said company discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear .....

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lusory or sham or practically moonshine then ordinarily the Plaintiff is entitled 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 t .....

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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 facts. In the case of Madhusudan Gordhandas & Co. v. Madhu Wollen Industries Pvt. Ltd. reported at AIR 1971 SC 2600 it was held that three principles on which the court acts are as follows:- a. The defence of the bona fide .....

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ian Bank Ltd. reported at (1949) 2 MLJ 70, and is examined in greater detail in Sundaram Chettiar v. Valli Ammal reported at AIR 1935 Mad 43 in the following words:- Taken by and large the object is to see that the defendant does not unnecessarily prolong the litigation and prevent the plaintiff from obtaining an early decree by raising untenable and frivolous defence in a class of cases where speedy decisions are desirable in the interest of trade and commerce. In general, therefore, the test i .....

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der even if only a part of the debt is disputed on substantial ground . However, if a dispute is not genuine and bona fide and it is put forward to hide a company s inability to pay, a petition of winding up should be entertained, and accordingly winding up should be allowed. It is well established that the machinery of winding up should not be misused by the petitioners as means of putting pressure to the company to realize debts, but where the court is satisfied that the company is insolvent a .....

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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 amo .....

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it was clearly mentioned that the company was obliged to make payment against each invoice within a period of 150 days, i.e. 135 days + 15 buffer days (where interest would not be charged) from the date of invoice. In case there is a failure to abide by this strict payment schedule, the contract specifies that a penalty charge at the rate of 1.5% per month would be leviable. The petitioner submits that towards the end of May, 2013 it was found that a sum of 1.38 crores (approx.) was due and out .....

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tioned contracts clearly state that in case the terms of the credit period if exceeded the petitioners reserve the unrestricted right to stop any and all pending orders or supply of books. Thus on this ground there cannot be any holding back of payment as that would lead to violation of the terms of the contract. In the same reply, it has been mentioned by SK Mehra that there exists a general slump in the market and the same mail also mentions that there has been a delay of receipt of payment fr .....

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r, having regard to the consequences likely to follow from the order of winding up and the company would be deprived of having a say on the quantification of debt and secure the claim it is always desirable to have the debt assessed. Mr. Jishnu Chowdhury, 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 .....

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re 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 ₹ 57-odd lakhs would have gone some distance to pin the company down as to the quant .....

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to be the quantum of the company s indebtedness. There is good reason for the company court requiring the quantum of indebtedness being established before it permits a creditor s petition for winding up to proceed. For one, even though the floor limit set by the provisions of the Companies Act is a meagre ₹ 500, it would be unfair to subject a functioning company to the attendant miseries upon a winding up petition being admitted merely on the company judge s subjective assessment of the .....

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is unable to ascertain the sum that is due to the petitioner, albeit prima facie, then no condition for avoiding publication of advertisements can be set. In the instant case having regard to the emails exchanged it cannot be said that the company is not indebted to the petitioner. The company even has proposed to pay at least 1.38 crores. Evidently, the amount which is due has been accepted by the company in its mails. The matter which now has to be examined is whether the defence put up by the .....

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s 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 esti .....

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nd the allegations made are vague and devoid of any particulars. There is no contemporaneous evidence to show that the company had denied its indebtedness but was only insisting that a return allowance to 15 per cent flat on all random books may be allowed to the company. In replying to the statutory notice apart from the fact that the accounts were not disclosed the claim for adjustment was also not made. The distributorship agreement provides that the company as distributor would have the righ .....

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s. The return allowance shall be 15 per cent of net purchasers made by the distributor from the publisher in the immediately previous calendar year on a region wise basis. The distributor shall attempt to return books/titles that have been purchased by it from the publisher in the immediately preceding 18 months on the basis of last in first out. Since significant amounts were outstanding against the supply made, the petitioner by an email dated 27th May, 2013 expressed its concern and requested .....

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million and the company was requested to provide an update on the accounts receivable so that the petitioner could draw a plan for recouping the debt. Of these approximately 25 per cent or 7.6 million is well above 180 days and another 6.2 million would be over due by the end of May, 2013 for a total of ₹ 13.8 million or over 40 per cent of total dues. On 18th May, 2013, the company while acknowledging its liability to make payment of ₹ 1.38 crores assured that the payments would be .....

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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 .....

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ach committed by the petitioner. There appears to be a subsequent notice on 14th August, 2013 in relation to both the distributorship agreement. In the said notice it was clearly stated that on 27th May,2013, a solution was suggested on behalf of the petitioner to work out a plan for payment. The said email addressed to Mr. S.K. Mehra of the company reads:- a) RHI is sent an existing stock detail of RHI books in possession by MB at its warehouse in Delhi and Kolkata. b) MB forward a detailed acc .....

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ls between 26th April, 2013 and 7th of August, 2013 to show that reconciliation statement was exchanged by an between the parties and as on 31st March, 2013 a sum of ₹ 2,49,59,980/- had remained due and payable on account of sale of books. The isolated instances raised in the affidavit filed by the company seeking adjustment by way of discount or SOR would not exceed few lakhs. The company replied to the statutory notice which was as vague as the earlier one. As I have indicated earlier th .....

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avit affirmed by the company on 29th January, 2015 and 2nd May, 2014 it 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 .....

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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 ₹ 3,24,28,751 and the basis of the petition is not that the company is unable to pay its debt. Moreover, the amount claimed is unclear and ambiguous. The learned Counsel was critical about the conduct of the petitioner. It is argued that the petitione .....

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Resources (International) Company Limited reported at (2011) 10 SCC 420 and Devasahayam (Dead) by Lrs. Vs. P. Savithramma & Ors. reported at (2005) 7 SCC 653. In Mediquip Systems (supra) the Hon ble Supreme Court found that there was a bona fide dispute concerning US $ 11,000. The Hon ble Supreme Court also found that there were inconsistencies in the finding of the learned single Judge. It was held that debt under Section 433 of the Companies Act must be a determined or a definite sum of m .....

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stries (P) Ltd. reported at (1971) 3 SCC 632 which would be evident from Paragraph 23, 24 and 25 which reads:- 23. The Bombay High Court has laid down the following principles in Softsule(P) Ltd. Re, (1977) 47 Com.Cases 438 (Bom): Firstly, it is well settled that a winding up petition is not legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. If the debt is not disputed on some substantial ground, the Court/Tribunal may decide it on the petition a .....

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hin 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 th .....

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ting between parties is a Civil Court; (ii) The existence of a dispute with regard to payment of interest cannot at all be construed as existence of a bona fide dispute relegating the parties to a Civil Court and in such an eventuality, the Company Court itself is competent to decide such a dispute in the winding up proceedings; and (iii) If there is no bona fide dispute with regard to the sum payable towards the principal, it is open to the creditor to resort to both the remedies of filing a ci .....

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fence of the company is in good faith and one of substance ; (ii) the defence is likely to succeed in point of law; and (iii) the company adduces, prima facie proof of the facts on which the defence depends. The Hon ble Supreme Court found that there was a prima facie dispute as to the debt and, accordingly, the order admitting the winding up petition was set aside. In IBA Health (supra) it was held that at the time of considering an application for winding up on the ground of inability to pay d .....

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petition would be proper lest there is danger of abuse of winding up procedure, 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 ne .....

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ever 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 facts of the case and in t he light of the conduct of the parties, lead the court to the belief that the dispute and defence which are raised for resisting the petition and the order of admission are raised by way of afterthought. .....

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re on the company to pay off the debts to a creditor. It cannot be allowed to become an illegitimate pressure in spite of the fact that the creditor cannot be compelled to avail of his ordinary remedy for the recovery of his debts. An order passed in a winding up petition is an order in rem. As a necessary and natural consequence of the same, the court attains the custody and control of the assets of the company which are released and distributed in the manner provided by the Act. The court is b .....

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dered to be wound up. In Amalgamated Commercial Traders Private Ltd v. A.C.K. Krishnaswami reported at (1965) 35 Com Cases 456 (SC), observed that:- It is well settled that 'a winding-up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a windingup order but really to exercise pressure will be dismissed, and under circumstances may be stigmatised as a scandalous abuse of the process of .....

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inst 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 whi .....

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B merely states the order of the list of books which were placed by the Mehras and the quantity which were expected to be placed. The other annexure merely shows an exchange of emails stating the difference between the expected quantity and the order that had been placed, even the view of the said company had been sought in the mails regarding the same. The said company has clearly stated that the supplies of the books were not made in terms of orders or advice of the company but in fact absurd .....

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liability. In the reply to the two notices dated August 12, 2013, the said company stated that it was a Distributor and thus was an agent of the principal. However, nothing of this manner has been specified in the contracts that were entered into. Thus, it is not legitimate for the company at this stage to deny their liability under the cloak of agency and claim its benefits. Both the agreements namely, the Distributorship Agreement 2009 and the Distributorship Agreement- Princeton 2011 clearly .....

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by the said company that contracting with more distributors in the north and eastern zone, where they were conducting their distributorship is untenable. Terming this to be a premeditated conduct on the part of the petitioners to injure the business 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 d .....

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ing 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 petitioner with respect to both Distributorship Agreement and Dis .....

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usly. Thus, these are neither reasonable nor bona fide disputes and do not form substantial defence. The said company in any event has no defence for the amount admitted. The defence set up is illusory. The disputes sought to be raised by the said company is in the nature of afterthought and lacks bona fide and so in the present case the objection and contention cannot be sustained. In the present case it is evident that the denial by the company is motivated by an intention to evade payment. It .....

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prove by showing that its defence is genuine and bona fide and also substantive deferred the order of admission of the winding up petition of the company and directed the company to deposit the invoice amounts in the court. In the instance case, having regard to the nature of the defence disclosed there cannot be any doubt that at least a sum of ₹ 1.38 crores was due and payable by the company to the petitioner. The company did not even raise any dispute contemporaneously and what emerges .....

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