Indian Turpentine And Prsin ... vs Pioneer Consolidated Company Of ...
1985 Latest Caselaw 497 Del

JUDGMENT

Ranganathan, J.

1. This is a petition for winding up under section 433, clauses (e) and (f), read with section 439, of the Companies Act, 1956. The petitioner is the Indian Turpentine and Rosin Co. Ltd. (hereinafter referred to as "the ITR") in which about 80 per cent. of the shares are held by the Government India. The ITR seeks the winding up of the respondent, M/s. Pioneer Consolidated Co. of India Ltd. (hereinafter referred to as "the PCC"). It may be mentioned here that at one time both the ITR and PCC belonged to the same group of persons but subsequently ITR has been taken over by the Government of India.

2. The petitioner's case is this : By an agreement dated March 1, 1974, the petitioner company appointed the PCC as its sole selling agents for the sale of its products in certain territories in India. This agreement was for a period of 5 years but subsequently it was extended till August 31, 1979. It is common ground that the agreement came to an end on August 31, 1979. Under the terms of the agreement, the PCC was responsible for the payment to the petitioner of all dues connected with the sales made by it and to indemnify the petitioner against all losses caused by any reach or non-performance of any contract entered into between the PCC and any person in respect of the sale of the petitioner's goods. PCC was liable to pay all the amounts of sale proceeds within 45 days of the date of sale whether or not it had been able to realise the proceeds from its customers and if default was made, it was liable to pay interest at 18 per cent. per annum or the prevailing bank rate, whichever was higher, on the amounts

3. The petitioner company claimed that as on August 31, 1980, a sum of Rs. 43,57,198. 31 including interest was due to it from the PCC. This, according to a statement annexed to the petition, comprised principal amount of Rs. 28,42,571. 70 which was the aggregate of the debit balances of the three branches of the PCC at Kanpur, Calcutta and Delhi outstanding in the books of the petitioner company. This sum of Rs. 28,41,571. 70 was said to have been arrived at after adjusting a security deposit of Rs. 2,00,000 which had been made by the PCC initially. In addition to the above sum of Rs. 28,41,571. 70 the petitioner company claims : (a) interest on the above amount from September 1, 1979, to August 31, 1980, at 15 1/2 per cent. amounting Rs. 4,40,443. 61 ; (b) an amount of Rs. 5,183 debited to the PCC during 1980-81 ; and (c) incidental charges claimed to have been realised by the PCC from the customers which it was bound to make over to the petitioner company amount to Rs. 10,70,000. Thus, the petitioner claims,

4. According to the petitioner, there were mutual discussions, negotiations and correspondence between the ITR and the PCC in the course of which the PCC substantially admitted the petitioner's claims says and except for some small discrepancies. Nevertheless, no amount was paid to the ITR in respect of the amount due to it in spite of several reminders. A registered notice dated July 30, 1981, did not also lead to any payment. The petitioner submits that, after the termination of the agency by the ITR, PCC had become defunct without any worth while business activities and lost substratum. The balance- sheet of the PCC for the year ending March 31, 1979, shows a share capital of Rs. 1,34,800 and practically not fixed assets or investment as against current liabilities to the June Rs. 50,00,000. The stock- in-trade and the cash balance aggregate to about Rs. 2,00,000 and though a huge amount of Rs. 40,00,000 is shown as due to the respondent company on account of sundry debts and advances, these items, according

5. Before proceeding to deal with the arguments addressed before me, a brief narration of the earlier proceedings in the case is necessary. This order may also be read continuation of the earlier order referred to below.

6. When the winding-up petition first came up, notice was issued to the respondent company and to the Central Government . The respondent company filed a reply to the show-cause notice. When the matter next came up, it was suggested that if the PCC would pay Rs. 5,00,000 and give a bank guarantee for Rs. 10,00,000, the petition could be admitted without citation and a chartered accountant be appointed to find out the exact amount due to the petitioner company. PCC was, however, unable to raise fund to the extent suggested. After hearing both the parties, Wed J. admitted the petition and ordered citation by his order dated may 6, 1982. PCC went in appeal (Co. A. No. 11 of 1982). The controversy in appeal mainly related to the order of citation made by the learned judge and certain interim orders passed by him. The Division Bench, by its order dated November 26, 1982 gave certain directions and was of opinion that before citation was issued, the matter needed to be examined in greater detail and remanded the case

7. The company petition was heard again by Khanna J. in the light of the orders of the Division Bench. After as elaborate discussion, the learned judge came to the conclusion that the winding-up petition should be matted and that citation should be published unless the petitioner deposited sum of Rs. 10,00,000 in court and furnished a bank guarantee for Rs. 12,00,000 within of ten days. This was dated march 15 1984.

8. Citation have since been published. The company, its workman and certain other persons claiming to be the creditors of the PCC have filed affidavits in opposition. The petitioner's affidavit in reply has been filed and the windings-up petition has now come up for learning on the basis of the affidavits filed and the documents filed therewith. It may be mentioned that, in the course of the various proceedings heretofore, the parties have filed a large number of statements, calculations and correspondents which it s impossible and unnecessary to refer to in full detail. I proceed to dispose of this matter on the basis of such of those document as have been specifically relied upon by earned counsel in the arguments before me.

9. The first question that arises for consideration is whether there is a clear and undisputed debt to the petitioner company from the respondent company. The petitioner claim of Rs. 43,57,198.31 is made up as follow:

Rs.

1. Debit balances of the Kanpur, Calcutta and New Delhi branches of the PCC including Interest up to 31-8-79 less adjustment of a security deposit of Rs. 2,00,000. 28,41,571.70

2. Interest from 1-9-79 to 31-8-80 at 15% 4,40,443.61

3. Debited during the years 1980-81 5,183.00

4. Incidental charge realised by PCC from customers in excess of authorised charges.

10,70,000.00

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43,57,198.31

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10. No argument were urged about the third item which is very small but counsel for the respondent sought to make out that there was a genuine dispute over the other three items between the parties and his contentions in this regard may now be considered.

11. To make up item 4 first, the petitioner's claim in this regard is contained in a letter addressed by it to PCC on February 15, 1979. It is common ground that, under the agreements between the two companies, PCC was entitled to collect from its customs incidental charges at specified rates. By this letter, the charge of the PCC was that the various branches of the PCC had recovered incidental charges in excess of the specified rates and that the amounts thus realised by the PCC during the years 1973-74 to 1977-78 amounted to Rs. 8, 27,398 as per the details furnished in the letter. PCC, according to the petitioner, was not only liable to make over these amounts to the ITr but was also liable to pay interest thereon amounting to Rs. 2,52,947. The total claim on this account was thus Rs. 10,80,345 as against which only Rs. 10,70,000 is claimed in the petition. The respondent's counsel submits the this claim of the petition was discussed between the parties and it has been eventually accepted by the petitioner t

12. The other amounts claimed by the petitioner from the respondent represent the value of goods supplied and interest thereon. The statements of account filed with the petition do not contain a clear break-up as to the exact composition of the amount of Rs. 28,41,571-70 though it is clear that the item of Rs. 4,40,443,.61 represents the claim on account of interest. Counsel for the respondent submits that the petitioner's figures in this regard have been different at different times and thoroughly inconsistent. He points out that:

(a) The auditor's report attached to the balance-sheet of the ITR for the tears 1979-80 claims that the debts due from the PCC on March 31, 1980, was Rs. 28, 41, 571.70 against which a provision for bad and doubtful debts was made to the extent of Rs. 7,52,000 which was considered inadequate by the auditors. The corresponding figures for the years 1980-81 were Rs. 28,46,755 and Rs. 7,52,000.

(b) As per minutes recorded by the ITR on September 6,1979, the total due from PCC as on August 31,1979, including incidental charges of Rs. 10.81 lakhs was only Rs. 38.72 lakhs. The principal due as on March 31, 1979, was Rs. 25.45 lakhs to which an amount of Rs, 3.34 lakhs was added as interest and from which Rs. 0.88 lakhs was deducted as commission due to PCC. Out of this, a sum of Rs. 18.33 lakhs under nine hen's was shown as disputes by the PCC.

13. These document do not, however, helps the respondent. On the other hand, the balance-sheet as on March 31,1980, confirms the figure of Rs. 28,41,517.70 mentioned in the petition and the figure for march 31, 1981, is seen to be arrived at by the adjustments of Rs. 5.38 lakhs referred to in the petition as having been made during 1980-81. It is difficult to agree with counsel for the respondent that the mere fact that a sum of Rs. 7.52 lakhs was considered bad and doubtful by the company and even more by the auditors casts a doubt on the genuiness of the debit balance show in the balance-sheet. The estimate of bad and doubtful debts is made on the financial position of the debtor and this only shows that the company and its auditors were not optimistic about the recovery of a good portion of the amounts due from PCC. So far as the recorded minutes are concerned, it is see that the figure shown therein is only insignificantly different from the figure mentioned in the petition before taking into account the amo

14. As against this, learned counsel for the petitioner points out that there are on record clear admission by the respondent itself that a very substantial liability remains outstanding from the PCC to the ITR. On October 7, 1982, the respondent failed an affidavit along with certain enclosures before the Division Bench. The enclosures furnished a breakup f Rs. 29,08,840.31 out of the total liabilities shown in the balances sheet at Rs. 43,33,204 as on March 31,1981. In these statements, the debt due to ITR (and a subsidiary,TSI) was shown at 21,83,162.50 Again the PCC filed on February 28, 1984, before the company judge a statement according to which "details of sundry creditors and other liabilities as on March 31, 1981" of PCC included, inter alia, the following.

Rs. P.

"Creditors Delhi Branch   3,98,821.61 
"Kanpur"     22,43,391.68 (as already filed) 
"Calcutta"     2,66,626.02 
Interest claim disputed (contingent)  8,51,748.55" 
 

15. In order words, the PCC acknowledged once again that the indebtedness of the company was of Rs.29.08 lakhs (which includes Rs. 21.83 lakhs due the ITR) and also stated that the interest amount in dispute was Rs. 8.52 lakhs. It is not quite clear that the interest here referred to is the interest claim of the ITr, but if it is, this indicates that, according to the PCC, the interest claim was only to the extent of Rs. 8.52 lakhs. It seems, however, likely that the interest claim referred to is that of the ITR for the figure of interest has been set out separately in this statement and since the PCC was disputing the claim of interest made by the ITR, it is extremely unlikely that the sum of Rs. 29.08 lakhs which was acknowledged as a clear liability included any interest element. It may also be pointed out that if the liability of Rs. 21.83 lakhs shown in the statement filed on October 7, 2982, and the interest amount of Rs. 8.52 lakhs shown in the statement filed on February 28, 1984, are taken together the

16. Even leaving out of account computation and proceeding on the version put forward by the PCC itself, the position emerges thus, In one of the statement filed along with the affidavit dated October 7, 1982, before the Division Bench, Pcc has worked out its total sales on behalf of the ITR since 1972-73, when the agency originally commenced, till 1980 and the total remittances made by it to the ITR till 1980. The former has been worked out at Rs. 5,31,38,676 and the latter at Rs. 5,24,69,069 resulting in a debit balance of Rs. 6,69,607 thus admitting that a sum of Rs. 6,69,607 was due to the ITR in 1980. It is then said that if Rs. 2,00,000 by way of security deposit and Rs. 2, 00,000 deposited in court are adjusted there will be a balance only Rs. 2,69,607. It may be added that since subsequently the PCC appears to have deposited sum of Rs. 1,20,000 (on June 19,1983, and January 2, 1984): the net amount admitted as due to ITR as on March 31, 1980, gets reduced to Rs. 1,24,607. Assuming the correctness of these

17. So far as the former is concerned, the PCC's contention is that it has till about Rs. 4,00,000 outstanding from parties to whom it had supplied goods and that these recoveries have not been possible because ITR started also supplying goods directly to them during the subsistence of the agency agreement and further appointed some of the as its agent after the termination of the agency agreement. But this is not answer at all the ITR 's claim. Under the agreement, PCC was a del credere agent for ITR. It has to make goods the full amount of the sale proceeds to the ITR within a stipulated (on pain of paying interest thereafter) and this had to be done irrespective of whether it was able to recover the sale price from the customers or not. Moreover the proviso to clause 18A of the contract which stipulated that no commission was payable to the PCC on the direct sales made by the ITR in or outside the area of agency clearly implies that ITR was within its right in among direct sales to customers and its doing so

18. On the question of interest also, it is clear that the PCC cannot bona fide or legitimately plead that no interest at all is payable to the ITR Under the agency agreement, ITR is entitled to interest in respect of sale proceeds not deposited within 45 days. The statement of total sale proceeds and total remittances does not disclose the interval between a sale and the remittance of its proceeds to the ITR and it is quite conceivable that though the net principal amount due is only Rs. 6.69 lakhs, the balance of the claim of the Itr could legitimately be on account of interest. In fact, the statement filed by the PCC along with the affidavit of February 28, 1984, shows that the PCC has a liability of Rs. 37.60 lakhs. Whether, as ITR says, this all represent principal or, as the PCC contends, it represent a principal of Rs. 6.69 lakhs and the balance of interest, there is no reason to deny liability. That part, the statement also clearly implies that only interest corresponding to the extent of Rs. 8.52lakhs i

19. It was then urged for the respondent that the petitioner's own conduct shows that there were genuine disputes between the parties and for this purpose reliance is placed on the fact that ITR filed Original Suit No. 237 of 1980 under section 20 of the Arbitration Act in the Court of the Additional Civil Judge at Bareilly. On behalf of the petitioner, it is contended that though this suit was filed in 1980, the PCC did not file any written statement therein and went on stalling the proceedings to gain time. So the petitioner was constrained to file this winding-up petition in December, 1981, and it was only subsequently on February 18, 1982, that the Additional District Judge passed an order under section 20 directing the ITR to file arbitration agreement and both the parties to give the name of the arbitrator appointed by each of them under the agreement within a period of one month. Since, by this time, the present petition had been filed, ITR moved the court on February 23, 1982, to stay the proceedings. On

20. In response to the publication of citation, certain parties have filed affidavits opposing the winding-up of the company. They are the Gwalior Sugar Co. Ltd., Sri Vikram Srivastave, Raza Textiles Ltd., Jwala Fabrics Ltd. and Sri J.P. Srivastava and Sons (MP) P. Ltd. claiming to be creditors of the PCC to the extent respectively, of Rs. 5,09, 162.84, Rs. 10,100, Rs. 9,43,161.39 , Rs. 35,000 and Rs. 42,210. Broadly summarised, these affidavits concede that the current assets of the PCC are merge and are not sufficient to enable the payment of even a fractional share of the amounts due to various creditors . However, winding up is opposed on the ground that the claims of the ITR are inflated and unreasonable and that the only salvation for the creditors is to give the PCC an opportunity to revive and established itself so that, from the monies earned, the creditors's claims can be satisfied. The most detailed of these affidavits is that of Gwalior Sugar Co. and its contents may be briefly referred to. The major

21. The record is not contain the details of the debt alleged to be due from PCC to Gwalior Sugar Co. as annexure "A" to the affidavit filed by this party is not on record. So also, the reply to this affidavit said to have been filed by the petitioner company is also not on record. But, from para 18 of the affidavit, it is seen that the PCC has not been able to meet its staff and running expenses and a substantial part thereof since 1980 is being met by the Gwalior Sugar Co. So far as Vikram Srivastava in concerned, the debt allege to be due to him is sum of Rs. 10,000 claimed to have been advanced by him in cash since June, 1984, I.e., after the date of appointment of the provisional liquidator. Similar is the position in the case of Shrivastava and Sons Ltd. The affidavit on behalf of the Raza Textile Co. has been filed by one of the Shrivastava and it is seen that this company has been defraying the expenses of PCC towards staff and running expenses. It also claims a sum of Rs. 25,000 said to have been advance rds purchase of equity shares. But these two advances have been made after and with the knowledge of the filing of th present winding- up petition. A perusal of these affidavits confirms the fact that the PCC has been in a bad financial position since 1980. The opposition is coming from persons belonging to the group of management of the PCC and are clearly motivated. Their desire to help the PCC is not doubt understandable but they do not come forward with any concrete proposal for the revival of the company and its financial reconstruction, particularly after the termination of its agency for the ITR. It rather seems to be an attempt on their part, as alleged by the petitioner, to utilise the staff and tenanted premises available to PCC at various places to their own advantage as they seem to have been doing for the past few years. The agency business said to have been started is of a very small magnitude and has resulted in loss, the accumulated amount of which as at the end of 1980-81 was Rs. 9.55 lakhs.

22. An affidavit in apposition has also been filed by seven of the workers. It is no doubt true that the workers are also entitled to a hearing before a winding-up order is made. In a case where the winding up of the company will throw a large number of workmen out of employment, the court will be very reluctant to orders winding up and will explore all possibilities to keep the company joint, if possible. But her the total number of workers involved is very small; the company as referred to earlier has not even been able to meet the expenditure on its staff out of its own resources. It has also been pointed out by the petitioner that, earlier, three applications filed by persons, purposing to be workmen, have been rejected or not pursued. In these circumstances, the application of a few individual workmen to the winding up cannot stand in the way of a winding up order if otherwise justified.

23. I have left till the last a rather fundamental objection raised by the respondent company which is that no winding-up order can be passed because, as on date, the petitioner's claim is barred by limitation and the petitioner today cannot maintain a suit for the recovery of the amount. It may be mentioned that this plea, which was not available to the respondent company earlier, was raised for the first time only on March 5, 1985. The point made on behalf of the respondent is that the sales agency agreement had come to an end on August 31, 1979, and that any suit for the recovery of dues under the agreement had to be filed before the expiration of three years thereafter. It is submitted that the filing of this winding-up petition on December 18, 1981, cannot save the bar of limitation for the filing of a suit. Relying on the decision of Anand J. dated May 16, 1985, in Diwan Chand Kappor v. New Rialto Cinema P. Ltd., (CP No. 60 of 1981 )(1986) 60 Comp Case 276 (Delhi) and of Allahabad High Court in J.A. Dixit v

24. On the other hand, on behalf of the petitioner, it is contended that the plea of limitation for a suit having expired will be relevant only at the date of presentation of a winding up petition, and that it will be anomalous to hold that such a plea could be raised to defeat the main tenability of a petition that has already been admitted. The decision of Anand J. (which, I was told, is under appeal) is sought to be distinguished and that of the Bombay High court in Modern Decor Painting Contract P. Ltd. v. Jenson and Nicholson (India Ltd. [1985] 58 Comp Case 255, strongly relied upon. It is also submitted that, in this case, this plea is not available to the respondent as it had acknowledged its liability to the petitioner company in its balance- sheets in the course of negotiations and discussions between the parties and in the affidavits filed on October, 7, 1982, and February 28, 1984.

25. The plea of the respondent that a winding-up order cannot be made if the debt is barred by limitation on its date, is directly covered by the judgment of Anand J. The conclusion of Anand J. is also supported by the reasoning the a line of cases on an allied point as to whether a debt of the company not barred by limitation on the date of presentation of a winding-up but which gets barred by the date of the winding-up order could be entertained or allowed by the official liquidator. On this issue, there has been a difference of judicial opinion. Some courts have answered this question in the negative. The decision of the Allahabad High Court in J.A. Dixit v. Official Liquidator, (referred to but not discussed in detail by Anand J.) and is Benares Cotton and Silk Mills Ltd. v. Sulbha Devi Gupta [1985] 3 Comp LJ 319; [1986 60 comp Case 639 (All) the decision of the Punjab High Court in Lahore Enameling and Stamping Co. Ltd V. A.K. Bhalla (which was

26. There is, however, a contrary line of case. The Bombay decision relied upon by the petitioner is directly on the point in issue in the present case. On the allied question referred to above, the Madras High Court In S. Abdual Muthalibyu v. K.M. Mohammed Abdual Khader [1962] 32 Comp Case 1120, and the Punjab High court in Ram Chand Puri Lahore Enameling and Stamping co. Ltd. [1960] 30 Comp Case 515 (PunJ) have taken the view that a debt, not barred at the time of presentation of the winding-up is, provable in liquidation though it gets time barred by the winding-up order is passed. the decision of the Allahabad High Court in Jwala Prasad v. Jwala Bank Ltd. (1957) 27 comp Case 310 (All) 1957 All 143, has been understood in some case of leading to the same view though it has been explained differently in the recent of Benares cottons and Silk Ltd. v. Sulbha Devi Gupta (1985) 3 Comp LJ 318; (1986) 60 Comp Case 639 (All). On a slightly different point, it will be appreciated that the decisions have a bearing on the pr

27. I may also deal with the question whether the petitioner's claim is time-barred as on date as alleged by the respondents though it may not be necessary to do so in view of the ruling of the Division Bench. If one were to go by the date of the last transaction or the end of the accounting or the dates of discussions between the parties or even the affidavit dated October7,1982, the debt will be barred as on date. The petitioner, however, strongly relies also on the affidavit dated February 28,1984, as constituting an acknowledgment which extends limitation by a further period of three years within section 18 of the Limitation Act,1963. In this context, it may be mentioned, as pointed out earlier, that in the enclosure to the affidavit dated October7,1982,filed before the Division Bench,PCC has clearly acknowledged (i) in the statements that a sum of Rs.21.83 lakhs was due to ITR, and (ii) in the notes set out in annexure II that Rs.2.69 lakhs were due to ITR. The company had also filed annexure III to VIII giv

28. For the reasons discussed above, I have come to the conclusion that the respondent company (PCC) should be wound up by court. In order accordingly. The official liquidator is appointed as the liquidator of the company. He will take charge of the assets and account books and documents of the company and proceed to wind up its affairs in accordance with the law. Notices and certified copies of this order of winding up shall be immediately communicated to the Registrar of Companies, Delhi, as required by the rules.