Arrow Electronics International ... vs Nitul Data System
1994 Latest Caselaw 155 Del

JUDGMENT

P.K. Bahn, J.

(1) This petition is instituted seeking an order of this Court for winding up the respondent-company on the ground that the respondent-company despite a statutory notice having been served has failed to pay off itsdebts.The facts, in brief, are that in the year 1988 the respondent-company placed an order for supply of various electronic components on the petitioner. the petitioner, which is a company based in New York having its representative based all dated in Bangalore, had dispatched the consignment accompanied by the invoices alldated 12/09/1989, for the total value of Us Dollars 16,992.21. The respondent-company had declined to take delivery of the said goods taking the plea that even before the goods were dispatched the respondent-company had cancelled the order. The petitioner-company then had made arrangement for re-export of the said consignment back to America. It is alleged that later on therespondent-company agreed to have the delivery of the said consignment on the prices mentioned in the invoices but required the petitioner-company to pay the demurrage charges to which the petitioner agreed and the fresh set of documents were sent to the respondent-company for taking delivery of the goods and therespondent took the delivery of the goods after paying the customs duty on the basis of the price quoted in the invoices. It is averred that despite the goods having been utilized by the respondent-company, the respondent-company did not make the payment and thus, after serving the statutory notice and on the failure of therespondent-company to make the payment within the stipulated period, the present petition was filed. It was mentioned that the respondent-company is liable to pay interest on this commercial transaction @ 20% per annum and the total amount due from the respondent-company as on 5/10/1991, is 26,167 USDollars.

(2) The respondent contested the petition pleading that the petition is not maintainable as there is no admitted liability of the respondent-company towards the petitioner. It is averred in the written statement by the respondent-company that even before the dispatch of the goods the order placed by the respondent-company was cancelled vide its telex dated 30/06/1988, which was repeated by another telex message dated 30/09/1988. It was further pleaded that there took place some negotiations between the parties and the respondent had offered to take the delivery of the goods if the price was to be revised in respect of one item P 8275 at 11.45 Us Dollars against invoice price of Us Dollar 20.50 although the petitioner-company had offered to reduce the price of the said item to Us Dollar16.59. It is averred by the respondent-company that after adjustment of thedemurrage charges and difference in customs duty and on the basis of the revised price of Us Dollars 16.59 the amount due from the respondent-company to the petitioner-company would be Us Dollars 11,634.79 only.So, it is pleaded that the respondent's defense is bonafide and the respondent-company has not neglected to pay its debt. It is pleaded that the amount claimed in the petition is not due to the petitioner and thus, the petitioner is not a creditor who could present a winding up petition. It is also averred that the respondent-company is fully solvent and is not liable to be wound up. It was also mentioned that the respondent-company has always expressed its willingness to remit the amount due to the tune of Us Dollars 11,634.79 after obtaining the necessary permission from the Reserve Bank of India.

(3) So, the question which arises for consideration presently, in order to decide whether this petition should be admitted or not, is whether the respondent-company has neglected or failed to pay its debt to the petitioner-company despite service of the statutory notice? The facts as are evident from the documents filed on the record are that on 12/09/1988, the petitioner had dispatched the goods as per invoices having the total value of Us Dollars 16,992.21 despite the fact that prior to the dispatch of the said goods the respondent had cancelled the said order and thus, on 30/09/1988, the respondent sent a telex by which it refused to take the delivery of the goods as the order stood cancelled and also pleaded that the price of the said particular item was Us Dollars 11.45 per piece.On 7/10/1988, the petitioner requested the respondent-company to accept the shipment and the petitioner was making efforts to get the better prices for the material. The petitioner, however, then finding that better price of the material was not available made arrangement to have the whole shipment returned back to America. On 10/12/1988, the respondent-company informed the petitioner that it would be very difficult for the petitioner-company to get the goods transferred back to America and it suggested three conditions that new invoices besent directly to the respondent with correction of the invoice for the said item P 8275and that after the consignment was cleared, the respondent will send the money to the petitioner and demurrage amount will be intimated to the petitioner for payment by the petitioner. It was mentioned by the respondent in this document that it was willing to take the delivery of the consignment on the above terms in view of their past relationship. In response to this telex the petitioner had sent telex message dated 12/12/1988, in which it did not agree for reducing the price and incur the losses and made a counter offer that the price of the said item can be reduced to Us Dollars 16.59. On following day, i.e. 13/12/1988, therespondent sent the telex that it would accept the delivery only if the price is reduced to Us Dollars 11.45. The petitioner did not agree to this offer and vide telex dated 20/01/1989, had informed the respondent that the petitioner was now making arrangements forgetting the goods shipped back to America. On 31/01/1989 and on 6/02/1989, the petitioner sent telex messages to its agent and to the respondent for making arrangement of documents for shipping back the goods. On 13/02/1989, the Cargo Agent, who was to ship back the goods,had asked the petitioner to submit the documents for re-export.

(4) It is the case of the petitioner that thereafter on the respondent-company agreeing to take delivery of the goods on the prices indicated in the invoices the documents were sent directly to the respondent and not through the Bank and therespondent-company admittedly got released the goods on paying the customsduty on the prices mentioned in the invoices and the petitioner-company paid thedemurrage charges. Reference is made in this connection to letter dated 29/03/1989, by which it was indicated to the respondent that the head-office of the petitioner-company from New York had already sent the shipment documents to the respondent-company and another set of documents are being sent with this letter to the respondent and the respondent was required to raise a separate document for the demurrage charges and send the same to the Bangalore office for onward submission to the New York office.It is significant to mention that thereafter there was no dispute raised by therespondent-company that the prices quoted in the invoices in respect of the documents sent by New York office directly to the respondent-company were not acceptable to the respondent; rather the respondent-company had got released the goods on the basis of the said documents which included the invoices containing the price of the goods as claimed by the petitioner and the respondent-company utilised those goods without raising any other demand of reduction of the price. It may be that earlier there was no agreement between the parties with regard to theprice of the goods as the goods had been dispatched after the order was cancelled but the facts show that the respondent-company had agreed to get the goods released and had asked for payment of demurrage charges by the petitioner-company and on that basis the shipping documents were directly sent to therespondent-company to which reference is made in this letter dated 29/03/1989.After the goods had been got released by the respondent-company and therespondent-company had not paid the amount to the petitioner, the petitioner had sent letter dated 26/10/1989, in which it was mentioned that consignment had been cleared by the respondent. The details of the invoices and the prices mentioned in the invoices and the total amount of Us Dollars 16,992.21 were given in the letter. The reply to this letter was sent by the respondent-company dated 2/11/1989, to the following effect: "REFERENCE your message regarding pending payment:We have not taken full delivery of the goods from Customs. If you want us to pay for the deliveries which we have taken, we can make part payment. As you know, we have to produce Customs Bill of Entry before any dispatch ofmoney."

(5) It is significant to mention that in this communication by the respondent-company, there is no dispute raised that the amount claimed by the petitioner in letter dated O 26/10/1989, is wrong or any less price was agreed upon.On 3/11/1989, again the petitioner sent a telex message to therespondent-company that payment be released immediately and the respondent-company should indicate exact date before which the respondent-company would release the payment to the petitioner. On 2/08/1990, again the petitioner reminded the respondent-company for releasing the payment. The details of invoices and amount due were also indicated in that letter. It was mentioned therein that demurrage charges had been allowed to be deducted.The respondent-company sent the reply dated 19/11/1990, and for the first time in that telex message the respondent-company mentioned that the order was cancelled and still the goods were dispatched and the petitioner had requested the respondent-company to clear the goods and pay the money after clearance and then, it was mentioned by the respondent-company that the prices which had been mentioned about the said item P 8275 @ Us Dollars 20.50 per piece and that the petitioner-company may consider the request of the respondent for reducing the price of the said item and should also agree to accept the money inInstallments.Even in this letter there was no dispute raised that price was not agreed to before taking delivery of the goods; rather the respondent-company had accepted the goods and taken delivery of the same on the prices indicated in the invoices.

(6) The learned Counsel for the respondent-company has, however, vehemently argued that at no point of time there has been reached any agreement between the parties with regard to the prices of the goods delivery of which therespondent-company had taken and thus, there is no debt due to the petitioner from the respondent-company. He particularly referred to para 6 of the rejoinder where the petitioner had taken the plea while the petitioner was in process of having the material returned to Usa the respondent reverted to the petitioner in March 1989 mentioning that the prevailing price for the device, namely, P-8275 had gone up in the market and hence, the respondent would be agreeable to accept the goods at the price agreed when the order was placed and he would take the delivery of the consignment while the petitioner would be liable to pay thedemurrage charges. It is contended that there is no document to show that therespondent had agreed to take the delivery of the consignment on the price already agreed upon, hence there was no agreement to have the goods on the prices indicated in the invoices. This contention of the learned Counsel for the respondent is misconceived because even if there is no document indicating such agreement but the conduct of the parties as is evident from the various communication sex changed between the parties, detailed out above, make it quite evident that thedelivery of the goods was taken by the respondent on the prices indicated in theinvoices. In case no price had been agreed upon the respondent in his communication would have disputed the facts as mentioned in the communication of the petitioner wherein details of the invoices and the prices have been indicated and therespondent would not have just requested for some more time for making thepayment. It is only as an afterthought that the respondent in subsequent reply to the legal notice issued to the respondent that the respondent came up with the plea that the price agreed in respect of that particular item was Us Dollar 16.59 and not US Dollars 20.50 per piece. It is significant to mention that it is only after a legal notice had been served on the respondent that the respondent tried to take permission from the Reserve Bank of India for sending the amount to the petitioner but not the amount calculated on the basis of the prices indicated in the invoices.

(7) In case there had been no agreement with regard to the prices of the saidconsignment, there could be no occasion for the respondent to have asked for the reduction of the prices in latter communication.From the facts as have come out on the record, it is evident that therespondent-company has neglected to pay the debt even though a statutory notice as required by the company law had been served on the respondent.Counsel for the respondent has referred to certain judgments in support of his contention that there is no subsisting debt which was liable to be cleared by therespondent. He has referred to Supply Company India v. Rafiulla Tea & industriesP. Ltd. & Anr., (1978) 48 Company Cases 796, wherein it has been laid down that following the dicta on the Supreme Court in cases of Madhusudan Fordhandas &Co. v. Madhu Woollen Industries Ltd., (1972) 42 Company Cases 125 and Amalgamated Commercial Traders (P) Ltd. v. A.C.K. Krishnaswami, (1965) 35 Company Cases 456, that a winding-up petition is not a legitimate means of seeking to enforce payment of the debt which is bonafide disputed by the company and a petition presented ostensibly for a winding-up order, but really to exercise pressure will be dismissed and may even be stigmatized as a scandalous abuse of the process of theCourt. Nothing said in this judgment is of any help to the respondent because in the present case from the facts it is, prima facie, clear that there is a clear liability of therespondent to pay the price of the said goods which liability has not been met by the respondent-company despite a statutory notice being given to the respondent-company. In reply to the statutory notice a plea was taken that it was for the petitioner-company to obtain permission of the Reserve Bank of India before therespondent-company could remit the amount due to the petitioner-company. This plea of the respondent on the face of it was preposterous because it was conceded before me by Counsel for the respondent that it is for the respondent-company to have obtained such permission. On similar facts the Calcutta High Court in the case of Eurometal Limited v. Aluminium Cables & Conductors (U.P.) P. Ltd., (1983) 53Company Cases 744, had held that it was for the party which is to remit the foreign exchange to have obtained the necessary permission under the Foreign Exchange Regulation Act from the Reserve Bank of India and on failure of party to obtain such permission and to remit the money due even after statutory notice under Section 434 of the Indian Companies Act had been served, the resort to winding-up of sucha company can be had.Counsel for the respondent has referred to Jugalkishore Benarsidas v. South India Saw Mills (P) Ltd., (1975)45 Company Cases 273, where the Kerala HighCourt had held that the fact that the company is unable to pay its debt does not necessarily entitle the Court to order winding-up of the company as the discretion to pass such an order, even in the case of the inability of a company to pay its debts,is by Section 433 vested in the Court and that discretion has to be exercisedjudicially.There is no dispute about this principle of law. In the present case the petitioner-company had by mistake sent the consignment in response to the order of the respondent but the said order stood cancelled which escaped the notice of the petitioner-company. On refusal of the respondent-company to take delivery of the goods the petitioner-company in its wisdom thought it fit to reduce the price of one item to Us Dollars 16.59 per piece but the respondent did not agree to have the goods even on that reduced price. The petitioner-company was not willing to agree to the price offered by the respondent and thus, the petitioner-company took steps for getting the consignment returned to' America and thereafter it transpired that instead of sending the documents through the Bank, on the request of the respondent the documents were sent to the respondent directly by the petitioner to enable the respondent to take delivery of the goods. As the respondent after taking delivery of the goods failed to make the payment, a communication was sent to therespondent mentioning that respondent has not paid the price. In tha,t communication the prices indicated in the invoices were mentioned and the amount was claimed on that basis. In response to that communication the respondent did not dispute that the said prices have been agreed upon at the time the documents we resent directly to the respondent for taking delivery of the consignment. The conduct of the respondent later on in not paying the amount due which, prima facie, is a debt entitles the petitioner to seek winding-up of the respondent-company. The equities in the present case are, prima facie, in favor of the petitioner.Reference has been made by Counsel for the respondent to State Trading Corporation of India Ltd. v. Punjab Tanneries Ltd., (1989)66 Company Cases 634, in which it was laid down that the petitioner was not entitled ex debito justitiae to an order winding-up of the company on the mere plea that the debt was not paid. the petitioner in that case had already resorted to a civil suit for recovery of the disputed debt. So, the Court held that the machinery for winding-up will not be allowed merely as a means for Realizing a debt due from the company. Facts in the said case were totally different. Hence, nothing said in this judgment is of any help to the respondent in showing that this is not a fit case, prima facie, for admission of the petition seeking winding-up of the respondent-company.

(8) The learned Counsel for the respondent has then referred to Ram Kishan &Others v. Kanwar Papers Private Ltd., (1990)69 Company Cases 209, in which it was held that where there was serious dispute between the parties on each essential fact which necessitated a trial in appropriate civil proceedings, the petition forwinding-up was not the remedy. It is well established principle of law that if there is a genuine bonafide dispute raised with regard to alleged debt, obviously resort to winding-up proceedings is not permitted. But in the present case, prima facie,it is quite clear that there is no bonafide dispute being raised with regard to the existence of the debt which the respondent has failed to clear despite statutorynotice.

(9) Counsel for the petitioner has brought to my notice a number of judgments where it has been held that even if some amount of the debt is disputed, still awinding-up petition can be brought on failure or neglect of the debtor to clear theat least admitted amount of the debt on service of statutory notice. Kudremukh Iron Ore Co.Ltd. v. Kooky Roadways P. Ltd., (1990)69 Company Cases 178, is one of such judgments. In the said case, there was short delivery of the goods entrusted to a common carrier. It was held that liability of the carrier to the petitioner on account of short delivery could be regarded as a debt within the meaning of Clause(e) of Section 433 of the Indian Companies Act and since the requirement of Section 434 of the said Act as to notice had been satisfied and as the respondent-company had neglected to pay it, so it is to be deemed unable to pay its debts and the petition had to be admitted. A plea was taken that till the amount of such liability was ascertained in a suit to be filed in Civil Court, such liability could not be termed asa "debt". This contention was negatived.In Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd., , the Supreme Court had laid down that the rules for winding-upon a creditor's petition are; if there is a bonafide dispute about a debt and the defense is substantial one, the Court would not order winding-up but the defense of the company should be in good faith and one of substance. At page 207, it was again laid down by the Supreme Court that 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.In M/s.P.G.Bhatia & Co. v. Softsule Private Ltd., 1977 Tax L.R. 2351, it has been held that a detailed inquiry at the preliminary stage of the admission should be avoided but all the same the Court has to consider the dispute raised by the company and the same can be achieved by an assessment and appreciation of the facts brought before the Court at the stage of the admission. It is only for the limited purpose of arriving at a conclusion whether a bonafide, serious and substantial dispute arises or not, that the Court examines the matter and if the petitioner makes out a prima facie case, the Court would exercise its discretion and the remedy afforded is an equitable one. It was also laid down that whether there is a bonafide dispute or not, would necessarily depend upon the facts and circumstances of each particular case and no hard and fast rule can be laid down in this respect.In State of Andhra Pradesh v. Hyderabad Vegetable Products Co. Ltd.,(1962)32 Company Cases 64, it was held that where a company is liable to only part of the debt and admits liability to repay the substantial part of the debt and neglects to pay that amount despite statutory notice, the company is deemed to be commercially insolvent.In Indian Turpentine and Rosin Company Limited v. Pioneer Consolidated Company of India Limited, (1988)64 Company Cases 169, this Court has held that even assuming there was some genuine dispute about the interest claimed to be due from the respondent to the petitioner and the respondent had no reasonable explanation for its inability to pay the balance of the principal amount and in anycase it could not legitimately deny its liability to pay any interest at all to the petitioner, it was held that the respondent-company's inability in the face of its liabilities to comply with the directions of the Courts on various occasions to deposit certain sums showed that the company was in financial straits and was unable to pay its clear and undisputed debts.

(10) The learned Counsel for the respondent has argued that in case the liability of the respondent-company is of contingent one i.e. subject to an agreement regarding the price of the goods the non-payment of such contingent debt does not bring about the rigours of Section 434 of the Indian Companies Act. Thiscontention, prima facie, is not tenable keeping in view the facts as have come out on the record in the present case, Primafacie, it is quite evident that the total value of the goods agreed to be paid was Us Dollars 16,992.21 which the respondent-company failed to pay despite various communications and including service of a stutory notice under the Act. Even the amount admitted by the respondent as duei.e. Us Dollars 11,634.79 was not paid. So, I find that it is a fit case for admission ofthe petition.I admit the petition and direct that the citations be published in accordance with rules in the newspapers "Indian Express", "Navbharat Times" and also in "Delhi Gazette".The matter to come up again on 4/07/1994.