Indian Duplicator Co. Ltd. vs V.P.L. Electronics And ...
1990 Latest Caselaw 425 Del

ORDER

Sabharwal, J.

1. This is a petition seeking winding up of the respondent (hereinafter referred ti as "the company") on the ground of liability to pay its debts due to the petitioner. Briefly, the facts as alleged in the petition are as under :

In the year 1984, the company offered to supply to the petitioner table top coated paper copier at Rs. 10,000 per machine plus taxes. The petitioner placed an order for purchase of 50 machines. On request from the company, an advance of Rs. 1,25,000 was given to it by the petitioner and the company gave a bank guarantee for the said amount. The company approached the petitioner and sought orders for more machines. The petitioner placed a supplementary order dated July 2, 1984, for another 200 pieces of the machines in continuation of the original order for supply of 50 machines. The petitioner also extended the delivery time for supply of these machines up to September 30, 1984. The petitioner also paid to the company further advance of Rs. 2,00,000 on July 19, 1984, and another advance of Rs. 2,50,000 on July 30, 1984. The company was asked to give bank guarantees for these amounts as well. However, the company dept on promising the petitioner that supplies of the machines will be made. However, the machines were not supplied at all. It was a condition of the order placed by the petitioner on the company that the goods will be supplied within three months from the date of receipt of the order. A further condition was that the company will pay interest on the amounts advanced at the rate of 18 per cent. per annum in case of delay in the delivery of the goods. The company has neither supplied the machines nor has it returned the advance amount received by it from the petitioner. The company is indebted to the petitioner in the sum of Rs. 5,75,000 plus interest at the rate of 18 per cent. per annum. The notices of demand dated September 4, 1985, October 7, 1985, February 28, 1986, and November 12, 1986, were served on the company. The company has been promising to make the payment but, in spite of service of notices, the company has neglected to make the payment of the amount due to the petitioner and hence the company is unable to pay its debts and is liable to be wound up.

Along with the petition, a copy of the offer made by the company to the petitioner for supply of the machines and certain other letters have been filed. The delivery period mentioned in the offer is three months from the date of receipt of the formal order subject to delay as may be caused by unforeseen circumstances. The offer also stipulates that the minimum order should be for 50 machines with an advance of Rs. 1,25,000. Copy of the order dated March 23, 1984, placed by petitioner on the company has also been placed on record. The company, by its letter dated June 29, 1984, informed the petitioner that the foreign supplier was not willing to give a quantity of less than 250 pieces at a time and that the petitioner was also requested to extend the time for supply of the materials. Copy of the letter dated July 3, 1984, placing a supplementary order for 200 machines has also been filed. By letter dated July 17, 1984, the company wrote to the petitioner that it requires an advance of Rs.5.75 lakhs for purchase of local material and after reciting that the company had already received an advance of Rs. 1.25 lakhs, a request was made to the petitioner to release another 2 lakhs immediately and balance on July 23, 1984. In reply to the aforesaid letter dated July 17, 1984, the petitioner by letter dated July 19,1984, wrote to the company that it is not the practice of the petitioner to make any unsecured advance to any supplier ; but, however, in view of the urgency of the situation, it was releasing a cheque for Rs. 2 lakhs but the company should furnish a bank guarantee from a reputed bank. By letter dated July 30, 1984, the petitioner informed the company that a further amount of Rs. 2,50,000 is being released and requested it to furnish a bank guarantee for the same at an early date.

The aforesaid letters are not disputed by the company. The receipt of payment of Rs. 5,75,000 in the manner aforesaid is also not disputed by the company. The company has also palced on record copies of various letters. At this stage, reference may be made to one such letter being letter dated July 22, 1984, written by the company to the petitioner stating that it approached its bankers and they have in principle recommended the guarantee required by the petitioner, and that the bankers are asking for margin for the same and the company has requested the bankers to reduce the margin and was hopeful of giving to the petitioner the guarantee soon.

2. The receipt of R. 5,75,000 by the company is not disputed. However, according to the stand of the company, no amount is due from it to the petitioner. The facts and circumstances due to which it is claimed that no amount is due to the petitoner, in the words of the company itself, are as under :

(i) The respondent-company was supplying small parts to the petitioner-company. During 1983, the petitioner-company discontinued its arrangement with BPL (India) Ltd. for supply of coated paper copiers manufactured from parts imported from Develop Germany. The petitioner-company wanted to engage the respondent company to replace BPL and hence agreed to finance the project and also to arrange to obtain supplies from Develop. The respondent-company agreed to obtain the industrial license, import license, know-how and local material at the cost of the petitioner-company. For this purpose, the petitioner-company paid Rs. 1,25,000 (rupees one lakh twenty-five thousand) to enable the representative of the respondent-company to accompany the chairman of the petitioner-company to Germany to finalise arrangements with Develop.

(ii) The respondent-company completed the arrangement which it had undertaken and obtained an industrial license on May 12, 1984, project report on May 1, 1984, and further undertook discussion with Develop on April 3, 1984, in Germany. The representative of the respondent-company returned to India after two days of the said discussion and furnished details of the expenditure incurred to the petitioner-company. The respondent- company arranged supply of one duplicating machine on May 1, 1984, to prove the capacity of the said machines.

(iii) Thereafter, the chairman of the petitioner-company fell ill and went to U. S. A. The junior management failed to make any decision thereafter. After several months, the respondent-company was instructed not to go ahead with completion of the project. After the respondent-company had satisfied itself regarding the expenses incurred by the respondent-company the petitioner further made an advance of Rs. 2,00,000 (rupees two lakhs) for purchasing local materials and for importing technology and placed an order for 200 machines. A further advance of Rs. 2,50,000 (rupees two lakhs fifty thousand) was made.

(iv) The respondent-company completed banking arrangements. Hypothecation statements for local material were filed with the bank. The said material had to be, however, subsequently deleted from the statement as it was old and after informing the petitioner-company, the same had to be scrapped.

(v) That the petitioner-company had undertaken to open a letter of credit in favor of the respondent-company which is apparent from a perusal of the letter dated March 13, 1984, but the same was not open as consequence of which the respondent-company could not opened a letter of credit in favor of Develop. The respondent-company obtained an import license in terms of the pro forma invoice from Develop. A number of staff members and engineers were hired for the completion of the project and consultancy was arranged but the petitioner-company failed to take any further action. It was revealed in the course of enquires that the petitioner's selling staff had a preference for plain paper copiers and was against the decision of getting coated paper copiers.

(vi) After several months of three exercises, the respondent was instructed not to proceed any further in this project. The respondent-company protested as this cancellation resulted in tremendous business and financial loss to the company. As a consequence of the protest of the respondent-company, the chairman of the petitioner company agreed to meet the expenses and losses incurred by the respondent-company on account of local material but did not agree to reimburse losses incurred as result of default in the decision regarding the project. The respondent- company submitted a complete account but no action was taken by the petitioner-company.

(vii) As a consequence of a number of meetings, the respondent- company agreed to enter into agreement whereby it would give up its claim for losses without prejudice in the event that the petitioner-company issued a letter of indemnification to the respondent-company against any claim by Develop and allowing repayment by Installments. The said terms were agreed to by the petitioner-company.

(viii) In terms of the agreement, Mr. J. K. Mehra, advocate, was to be appointed an arbitrator and he was expected to give an award in terms of the agreement which was to be made a rule of the court. The petitioner-company was to forward a draft award and the letter of appointment to the arbitrator. However, the petitioner-company failed to fulfill its promise and merely forwarded a draft letter of appointment. The respondent-company failed to sign the said letter as it was not accompanied by the agreed draft award and informed the petitioner-company to which no reply was received.

(ix) Enquiries revealed that the indecisions and failure to conform to the terms of agreement referred to hereinabove was as a consequence of the resignation of the chairman of the petitioner-company.

(x) In the said facts and circumstances of the case, the respondent-company has incurred an actual loss of Rs. 5,00,000(rupees five lakhs) on account of cancellation of the contract for supply of 200 copiers from Develop and approximately Rs. 2,00,000(rupees two lakhs) on account of loss of business of the respondent-company and loss on account of business inactivity sausing reduction of turnover from Rs. 60,00,000 (rupees sixty lakhs) to Rs. 20,00,000(rupees twenty lakhs) during the year under reference. Thus, the respondent-company has suffered a loss of Rs. 65,00,000 (rupees sixty five lakhs). The respondent- company has also been forced to close down its business and start on a completely new line of business of air-conditioning parts as a result of cancellation of this contract which has further caused a loss of more than Rs. 20,00,000 (rupees twenty lakhs) for the expenditure incurred in starting a fresh line of business. In this manner, the respondent-company has been subjected to a loss of Rs. 85,00,000 (rupees eighty five lakhs) and is entitled to claim reimbursement of the same from the petitioner-company.

(xi) That the amount claimed by the petitioner-company is disputed and in fact it is the petitioner-company which owes a substantial amount of money to the respondent and hence the winding up petition is completely false, frivolous amd malicious.

(xii) That the company is highly solvent and it would be highly unjust and inequitable to wind up the respondent-company. As shown in the profit and loss account for the year ending March 31, 1986, the turnover of the respondent-company is Rs.45,08,108.83. Their net current assets are Rs. 38,07,252.89 as on March 31, 1986. Hence, the company is completely solvent and is able to meet any debts due from the company. The petition under reply hence merits dismissal forth-with.

On the basis of the aforesaid facts and circumstances, the company says that the amount is not due and pleads that, in any case, these facts show the existence of a bona fide dispute in regard to the facts as reproduced above have been further elaborated by the company and reference has been made to the correspondence exchanged between the parties. The company has also placed on record an unsigned document entitled "Note on Coated Paper Copier ", and relying on it, learned counsel for the company contended that the petitioner was required to open letters of credit for the purposes of the company effecting the import of the components of the machines. The case of the company is that, prior to placing an order on the company, it was taking supply of coated paper copiers in an arrangement with B.P.L.(India) Ltd. The said arrangement was discontinued. Now, the petitioner wanted to engage the company to replace B.P.L. and hence the petitioner agreed to finance the project and also agreed to arrange the imported components from a German company, Develop. The company agreed to obtain the industrial license, import license,know-how and local materials at the cost of the petitioner. The company completed the arrangement and obtained the industrial license on May 12, 1984, and undertook discussion with Develop on April 3, 1984, in Germany. The chairman of the petitioner fell ill and went to the U.S.A. The junior management failed to take a decision thereafter. After several months, the company was instructed not to go ahead with the completion of the project. The petitioner, after satisfying advance of Rs. 2,00,000 for purchasing local material and for importing technology and placed an order for importing additional machines. As a consequence of the petitioner not opening letters of credit in favor of Develop, the company could also not open letters of credit in favor of Develop. A number of staff members and engineers were hired by the company for completion of the project but the petitioner failed to take any further action. After several months of these exercise, the company was instructed not proceed any further with the project. The company protested as the cancellation resulted in tremendous business and financial loss to the company. The chairman of the Petitioner-company agreed to meet the expenses and losses incurred by the company on account of local material but did not agree to reimburse losses incurred as a result of default and indecision regarding the project. The company submitted a complete account but no action was taken by the petitioner. Further details as per the reply reproduced above have been given by the company.

The main stand of the company seems to be that, by non-opening of letters of credit by the petitioner and by illegal termination of contract, the company has suffered losses which are liable to be set off against the claim of the petitioner. Apart from the unsigned note, as referred to above, there is no other document to show that the petitioner had agreed to open letters of credit. The petitioner has denied that it agreed to open letters of credit. The of the petitioners seems to be correct. On the contrary, it appears that the company had agreed to furnish a bank guarantee for the amounts advanced to it but it did not furnish the same for amounts other than Rs. 1,25,000. Even otherwise, prima facie, reliance on the unsigned note and the correspondence prior to the order dated March 23, 1984, is not of much consequence on the facts and circumstances of this case. There is no requirement in the order that the petitioner is required to open letters of credit. There is also no reference to the opening letters of credit in any of the letters sent by the petitioner to the company. Counsel for the petitioner, however, placed reliance on letter dated February 28, 1985, sent by the company to the petitioner, inter alia, stating that the petitioner had agreed to give the guarantees to the bankers of the company for opening of letters of credit in favor of the German firm. According to the petitioner, the aforesaid letters and a few more are only fabrication and were not received by the company. Prima facie this letter does not fit in the sequence of events and no reliance can be placed on it. Counsel for the petitioner also contended that specifications for the imported components as given by the petitioner to the company are exactly the same as were being supplied by B.P.L. However, I fail to see the relevancy of this contention.

It would also be useful to notice that, in reply dated September 6, 1985, sent by the company to the petitioner's letter dated September4, 1985, making a demand for refund of Rs. 5,75,000, the company, inter alia, resisted the claim of the petitioner on the ground that the German company was contemplating action for non- performance and was trying to recover Rs. 2,00,000 as damages from it and as such this amount will have to be retained by the company unless the petitioner gives indemnity. In the letter dated September 6, 1985, it is also stated that the company has no objection to refunding the amount which is due to the petitioner and that Mr. Menon of the petitioner-company had indicated that the amount be settled between the parties across the table and, in the meanwhile, the company should send to the petitioner whatever amount is due according to the company to the petitioner to which the company agreed and when it was about to remit Rs. 75,000 to the petitioner, the letter dated September 4, 1985, was received. In essence, the company agreed that some amount is due from it to the petitioner but nothing was paid. In another letter dated October 18, 1985, Mr. Nanda of the company said "I was even prepared to remit the amount due to you in accordance with my books, but you chose to be not honest to purpose and wrote to me".

3. From the aforesaid facts and circumstances, prima facie, it seems clear that there was no agreement stipulating opening of letters of credit by the petitioner. There is also nothing on record to suggest that the foreign supplier claimed recovery of any amount from the company. Prima facie the company has not shown that any amount as damages , etc. is due to it from the petitioner. In regard to the amounts, if any, spent by the company for purchase of indigenous material or any other damages which it may have suffered, the remedy of the company may lie elsewhere but it does not show the existence of a bona fide dispute. It may again be noticed that receipt of the amount is admitted. It is also admitted that the machines were not supplied. Even when disputes arose, the company admitted that at least some amount is due from it to the petitioner but none was paid.

4. Learned counsel for the respondent, relying on Newfinds India v. Vorion Chemicals and Distilleries Ltd. [1976] 46 Comp Case 87 (Mad), submitted that even if only a part of the debt is disputed on substantial grounds, the winding up petition is to be dismissed. Reliance has been placed on the following observations of the learned single judge, "Bona fide dispute means that the dispute means that the dispute is based on a substantial ground and if such dispute is raised, the court should refuse to make an order of winding up, even if only a part of the debt is disputed on a substantial ground". This decision is not applicable as, in the present case, in my view, the company has not been able to raise a bona fide dispute even in regard to a part of the debt. It is well-settled that the court will not wind up a company if the debt is bona fide disputed and the defense is a substantial one which will depend upon the facts and circumstances of each case. In the present case, the aforesaid discussion shows that, even according to the company, it owed a certain amount to the petitioner. In Madhusudan Gordhandas and Co. v. Madhu woollen Industries P. Ltd. [1972] 42 Comp Case 125 (SC), the Supreme Court has cited with approval the following observations made in Tweeds Garages Ltd., In re [1962] Ch 406 ; [1962] 32 Comp Case 795 (Ch D), page 131 of 42 Comp Case 125, "Where, however, there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed, the court will make a winding up order without requiring the creditor to quantify the debt precisely." Thee observations in Newfinds India [1976] 46 Comp Case 87 (Mad) made by the learned single judge that even if part of the debt is disputed, the court should refuse to make an order of winding up, can only mean that where a substantial part of the debt is disputed on a substantial ground, the winding up petition should be dismissed. Court will not refuse to make an order of winding up where the disputed part of the debt is insignificant. What is "significant" or "insignificant" will again depend on the facts of each case. In the present case, the company has not been ble to raise a bona fide dispute in respect of a significant part of the debt.

5. In view of the above, the petition is not liable to be dismissed without its admission.

6. Accordingly, the petition is admitted to hearing. Let it be advertised in Indian Express and Veer Arjun as also in the Delhi Cazette for November 30, 1990. In case the company deposits in this court a sum of Rs. 5,75,000 within four weeks, the advertisement as directed above, will not issue.

7. List the petition on November 30, 1990.