Ashoka Industries vs Tobu Enterprises Ltd.
2002 Latest Caselaw 1498 Del

JUDGMENT

Vikramajit Sen, J.

1. The facts in the present case are that three purchase orders were placed by the respondent-company ('the company') which were as Follows:

P.O. No.

Date

Item

Qty.

25-3-1996

Tube Oil Bottle

33,000 Nos.

Plate Butt Assembly

33,000 Nos.

2-2-1997

Tube Oil Bottle

5,500 Nos.

Plate Butt Assembly

5,500 Nos.

5-9-1997

Tube Oil Bottle

20,000 Nos.

Plate Butt Assembly

20,000 Nos.

Deliveries were duly made and subsequent thereto 15 (Fifteen) Bills were raised covering the three consignments. The company had made part payments from time to time leaving a balance of Rs. 4,16,261, being the amount of the last three bills less a sum of Rs. 75,000 received on 18-2-1999. After the issuance of a legal notice under Section 434 of the Companies Act, 1956 ('the Act') 'Central Sales Tax Declaration Forms C, were forwarded to the petitioner by the company, but the outstanding notified sum of Rs. 4,16,261 was not cleared. Under cover of the company's letter dated 13-1-2000 a statement of accounts was forwarded by it showing a sum of Rs. 3,79,757 due and payable to the petitioner. This was responded to by the petitioner by its letter dated 21-6-2000 stating that a sum of Rs. 4,16,261 was due and payable. It will be relevant to immediately note that there is a clear admission of debt in the sum of Rs. 3,79,757. In addition thereto there is collateral evidence in support of the claim of Rs. 4,16,261, inasmuch as 'C' Forms in respect of all the transactions stand forwarded by the company to the petitioner.

2. The defense to the winding-up petition is that 5,500 Plate Butt Assemblies ordered and delivered against company's Purchase Order No. 685 dated 2-2-1997 were defective. After their delivery to the respondent, these Plate Butt Assemblies were used in the manufacture of rifles

supplied by the company to the Rifle Factory at Ishapore, West Bengal. The receipts of complaints were conveyed to the petitioner by the company in its letter dated 21-5-1998 calling upon the former 'either to rectify the Butt Assembly lying in stock or take the deviation approval from CQA (SA), Calcutta for this lot so that we can utilise the Butt Plates'. The company has filed the petitioner's letter dated 28-7-1998, inter alia, stating that it would rectify the deviations in future orders received in due course. The company has also relied on a letter dated 8-6-2001 emanating from the office of the Joint General Manager, Government of India, Ministry of defense, Ordnance Factory, Tiruchirapalli addressed to the General Manager, Rifle Factory, Ishapore in which it has been stated that a bill of the company for a total value of Rs. 5,34,379 has been withheld pursuant to the addressee's letter dated 24-5-2001. It needs to be emphasised that this communication has been made after three years of the delivery of the disputed Plate Butt Assemblies.

3. Along with the rejoinder the petitioner has filed a letter dated 6-8-1998 from Shri K.K. Mukherjee (JSO), Government of India, Ministry of defense (DGQA), Sr. Quality Assurance Estt. (Armaments), Hastings Post Office, Calcutta addressed to the Controller, Controllerate of Quality Assurance (SA), Ishapore, Nawabganj, 24-Parganas (N), West Bengal, the contents of which read as follows:

"The firm M/s. Ashoka industries has been supplying the subject store for a considerable period to various Ordnance Factories like RFI, OFT and also different firms on sub-contract.

The discrepancies observed by you in Plate Butt Assembly, advance sample of Butt submitted by M/s. Tobu Industries Ltd., have been studied carefully. The discrepancies will not affect the fitment and functioning of the store. Moreover, M/s. Tobu Industries will supply the Butt duly fitted with Plate Butt Assembly, by themselves. Any rectification work at all needed will be carried out by M/s. Tobu Industries.

These items as is being manufactured by pressure die casting and the same die is used, no difficulty in fitment is apprehended.

The firm has been advised to take care of the discrepancies in future lots. In view of the above, the quantity 5500 Nos. which we have already released is recommended for acceptance".

4. The petitioner has also filed the company's letter dated 22-1-2000 in which it had requested the petitioner to supply 5000 Nos. of Butt Plate Assemblies approved from SQAF (A) Hastings in three equal lots by February, March and April 2000, respectively, against the new supply order of DF Trichy. It was further stated that cost of each Installment would be paid together with an additional amount of Rs. 50,000 to clear outstanding payment. Thereafter company's letter dated 2-2-2000 has been filed, the contents of which are reproduced below:

"This has reference to the telecom with our Mr. G.S. Bhalla regarding supply of Butt Plates.

At the outset I really appreciate the co-operation provided by your organization in the past. As you are aware, the company was not cluing well and factually going down day by day, when I took over as M.D., at that time your total outstanding was approx. 7 Lacs. We have paid Rs. 4.38 Lacs to reduce your old o/s to Rs. 3.80 while we could only buy goods worth Rs. 1.18 Lac due to lack of defense orders.

As discussed amongst yourself & Mr. Bhalla, we shall be paying you the cost of fresh material Along with additional Rs. 50,000 out of year old outstanding payment with every supply of 5,000 Butt Plates in orders to square up your old account.

We are now getting some good defense orders and may gradually come out of red, if your co-operation continues for some more time. We are expecting another order of 20,000 Nos. which will also be forwarded to you. Please give in a right price to enable us to execute the order."

5. In winding-up proceedings, it is necessary to keep the following conditions in perspective-

(i) If there is a bona fide dispute and the defense is a substantial one, the Court will not wind-up the company.

(ii) Where the debt is undisputed, the Court will not act upon a defense that the company has the ability to pay the debt but the company chooses not to pay it.

(iii) Where the defense of the company is in good faith and one of substance, and the defense is likely to succeed in point of law, and the company adduces prima facie proof of the facts on which the defense depends, the petition should be rejected.

(iv) The Court may consider the wishes of creditors so long as these appear to be justified.

(v) The machinery of winding-up should not be allowed to be utilised merely as a means of Realizing its debts.

[For the above propositions see Pradeshiya Industrial & Investment Corporation of Uttar Pradesh v. North India Petro-Chemical Ltd. [1994] 2 Comp. LJ 50 (SC) in which the observations in Amalgamated Commercial Traders (P.) Ltd. v. Krishnaswami [1965] 35 Comp. Cas. 456 (SC) and Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd. [1972] 42 Comp. Cas. 125 (SC) have been paraphrased].

(vi) If the stance of the adversaries hangs in balance, it is always open to the company court to order the respondent-company to deposit the disputed amount. This amount may be retained by the Court and be held to the credit of the suit, if any. See Nishal Enterprises v. Apte Amalgamations Ltd. [Civil Appeal No. 720 of 1999 arising out of SLP (C) No. 14096 of 1998 dated 5-2-1999].

It appears to me that the following point may be added to the foregoing considerations.

(vii) Generally speaking, an admission of debt should be available and/or the defense that has been adopted should appear to the Court not to be dishonest and/or a moonshine, for proceedings to continue. If there is insufficient material in favor of the petitioners, such disputes can be properly adjudicated in a regular civil suit. It is extremely helpful to draw upon the analogy of a summary suit under Order xxxvII of the Code of Civil Procedure. If the Company Court reaches the conclusion that had it been exercising ordinary original civil jurisdiction it would have granted unconditional leave to defend, it must dismiss the winding-up petition.

6. I am unable to find the existence of a bona fide and legal dispute in respect of the amount claimed in the petition. There is a clear admission of debt for the amount of Rs. 3,79,757. In addition thereto since 'C' Forms have been forwarded in respect of the entire consignment delivered by the petitioner to the company, it is manifest that there is no dispute even to the extent of Rs. 4,16,264. With regard to the defects in Butt Plates, it is indubitably clear from the letter dated 6-8-1998 from the Senior Quality Assurance Estt. (Armaments), Hastings, Calcutta, that supplies of which complaints are now being raised by the company were cleared. Had there been any subsisting complaint, the company would not have requested the petitioner to make further supplies in January/February 2000. Even on this date there is an acknowledgment of debt for the sum of Rs. 3,80,000. In response to a Court query, the learned counsel for the company had clarified that the supplies made by it to Tiruchirapalli were not from goods manufactured by the petitioner. If this is so, there is no substance in the present defense. Even if the goods were purchased by the company from the petitioner, the defense is legally untenable since this would constitute a completely separate transaction, even if the clearance given of the Ishapore consignment is to be ignored, Significantly, it has been conceded by the learned counsel for the company that in respect of the supplies made to Ishapore, ninety per cent of the price had already been received by the company. It is not immediately cleared whether the remaining ten per cent had also been paid. However, even if the entire payment had not been cleared, this would not either in law or in equity justify the company from withholding the payments of the petitioner. The Court should also not countenance a defense which has been articulated only in response to the winding-up petition. Where prior to this disputation the company has admitted its debt, and requested for further supplies, the defense takes the colour not merely of moonshine, but of being sham and dishonest defense.

7. The rights of the parties are regulated by the provisions of the Sale of Goods Act, 1930. Section 32 states that delivery of goods and payment of price are concurrent conditions. The company has failed altogether to

disclose the existence of any agreement to the contrary. It is also not the company's case that it did not have sufficient time for examining the goods, as envisaged in Section 41. In supplying the goods to Ishapore, the company must be deemed to have accepted the goods as contemplated in Section 42.

8. In the background of facts as well as of law, the defense that has been presented is not only untenable in law but smacks of being false. Therefore, the winding-up petition is admitted. The respondent is directed to deposit with the Registrar of this Court, within four weeks from today, a sum of Rs. 4,16,261.

9. On the failure of the respondent to make compliance, the citation shall be published in the Delhi Editions of the 'Statesman' (English) and Nav Bharat Times (Hindi) and in the Delhi Gazette, returnable for 11-11-2002. It is made clear that in such an event, keeping the admission of the company of its suffering financial and commercial viability in view, a provisional liquidator is likely to be appointed on the next date of hearing.

10. Renotify the matter on 11-11-2002.