Jubilant Organosys Ltd. vs Dcm Shriram Industries Ltd.
2004 Latest Caselaw 817 Del

JUDGMENT

A.K. Sikri, J.

1. The petitioner is a private limited company having its registered office in Gajraula District, U.P. It was incorporated with the name Vam Organic Chemical Ltd. However, w.e.f. 23.11.2001 the name of the petitioner company was changed to Jubilant Organosys Ltd. The respondent, which is a public limited company incorporated under the Indian Companies Act and having its registered office in New Delhi, approached the petitioner for supply of SBR Latex Encord 104, VP Latex Encord 106. Various purchase orders were placed on the petitioner company in this behalf. The petitioner effected the dispatches to the respondent's Kota Works according to the specifications regarding quality and quantity as per invoices raised. As per invoices, one of the terms mentioned was that 90 days credit would be given. The respondent was, therefore, required to make payment in respect of these invoices within 90 days of the supplies. However, the respondent failed to honour its commitment for the payment on due dates. As per records of the petitioner, respondent owes a sum of Rs.32,68,640/- as on 30.6.2002 and overdue interest charged thereon comes to Rs.11,91,326/-. The details of bills are given in Annexure A-3 and statement of account showing the aforesaid outstanding is annexed with the petition as Annexure-A-4. These are the averments made in the petition regarding the transactions in question.

2. It is also stated by the petitioner that despite various reminders, requests and meetings of the petitioner's representative, the respondent has not fulfillled its commitment. In the letter dated 31.10.2001 the respondent even accepted its liability to the extent of Rs.30,62,670/- and, therefore, the petitioner's stand is that at least to this extent the liability is acknowledged and even still the amount is not paid. The petitioner served a statutory notice dated 27.7.2002 under Sections 433 and 434 of the Act calling upon the respondent to clear the outstanding dues of the petitioner, which according to the petitioner were to the tune of Rs.44,59,966/- together with interest calculated at the rate of 24% p.a. Within 21 days of the receipt of this notice. In spite of service of that notice, respondent failed to discharge its liability and the petitioner, therefore, draws an inference that respondent is unable to pay its debts. In this back drop, present petition is filed seeking an order of winding up of the respondent company.

3. In the reply filed on behalf of the respondent, the respondent has not denied the supply of the material and also that the respondent had written letter dated 31.10.2001 accepting its liability to the extent of Rs.30,62,670/-. However, the case set up by the respondent is of counter-claim and this counter-claim is based on an Award passed by an Arbitrator awarding a sum of Rs.38,52,956/- along with interest at the rate of 18% p.a.

4. The facts culminating into passing the aforesaid Award as stated in the reply are that the respondent filed a writ petition being CWP.838 of 1999 in the Allahabad High Court against the order of Controller of Molasses dated 25.8.99 w.r.t. the price for the molasses sold by the respondent's unit, Daurala Sugar Works, to petitioner. A Division Bench of the Allahabad High Court by its order dated 12.7.2000 was pleased to quash the impugned order and referred the matter of determination of market price of molasses to Justice (Retd.) A.N. Verma. By his order dated 10.1.2001, Justice (Retd.) A.N. Verma held that respondent was entitled to receive from the petitioner an amount of Rs.38,52,956/-. In the meantime, petitioner filed SLP No.12290/2000 in the Supreme Court of India against the order dated 12.7.2000, which is pending. The Supreme Court was pleased to decline stay of the impugned order. The Respondent has been making repeated demands on the petitioner to pay the amount of Rs.38,52,956/- determined by the Arbitrator along with interest @ 18% p.a. But the petitioner has been avoiding to make the said payment. The last such demand was made on 26.6.2002 and the petitioner's refusal was on 22.7.2002. Therefore, claims the respondent, once this amount is adjusted, nothing is payable to the petitioner. It is also the case of the respondent that the respondent has a right to seek this adjustment and in fact in stead of making the payment to the petitioner, the present petition was filed as counter blast. Therefore, the case of the respondent is that not only respondent has legitimate defense to the instant petition, the petitioner has deliberately and with mala fide intent concealed the aforesaid facts in this petition which is an abuse of the process of the court and, therefore, the petition should be dismissed with exemplary costs.

5. In the rejoinder filed by the petitioner, the petitioner does not dispute the passing of the aforesaid Award by Mr. Justice A.N. Verma (Retd.). However, the petitioner argues that against the said Award, SLP No.12290/2000 is filed which is pending before the Supreme Court and further that these arbitration proceedings have no bearing on the instant case and because of these reasons the facts thereof were not disclosed in the company petition.

6. The necessary factual matrix can thus be summed up by stating that the supply of material by the petitioner to the respondent and amount payable by the respondent to the petitioner in this behalf is not denied though there is some dispute about the exact amount payable. On the other hand, amount payable by the petitioner to the respondent under the Award is not denied by the petitioner although it is stated by the petitioner that the matter is pending before the Supreme Court. There is no stay and this prayer was specifically refused by the Supreme Court as can be found from the order dated 21.8.2000 filed in the said SLP which reads as under:

" Issue notice. No interim order"

7. On the basis of aforesaid admitted position, the question that falls for consideration is as to whether the respondent can raise counter-claim on the basis of the Award? To put it differently, whether such a counter-claim would be a legitimate ground to deny the petitioner payment which the respondent is to make in respect of the transaction on the basis of which present petition is filed.

8. This very issue is answered in at least two judgments which were produced by learned counsel for the respondent. One of these, viz, WIMCO LTD. VS. SIDVINK PROPERTIES (P)LTD. reported in 1996 (86) Company Cases 610 is the judgment of this court. In that case the court opined that the counter-claim of the respondent company form the basis of bona fide dispute with regard to its liability to pay the amount to the petitioner company. The relevant observations in this behalf make the following reading:

" Learned counsel for the petitioner has drawn my attention to the provisions of section 434 and has argued that as the respondent has failed to reply to the two letters written by the petitioner and also to the statutory notice it should be deemed that the respondent has neglected to pay its debt. I am afraid that there is a fallacy in this argument. The mere omission of the respondent to comply with the statutory notice and in not sending any replies to the communications already given by the petitioner - company to the respondent - company would not mean that the respondent has admitted the liability. The question which has to be decided in order to bring about the enforcement of the deeming provisions of section 434 of the Companies Act is whether there exists any debt or not which the respondent - company is liable to pay to the petitioner. In case there is a bonafide dispute about that debt, the question of applying the deeming provision would not arise because unless and until the court has, prima facie, come to the conclusion that there exists a debt which the respondent is liable to pay to the petitioner the statutory presumption that the company has neglected to pay on receipt of the statutory notice would not come into force. In the present case, it is quite evident that there is a bonafide dispute raised with regard to the liability of the respondent-company.

Learned counsel for the petitioner vehemently argued that the liability of the respondent is different from the liability which may be imposed on Mr. Prasad by the said lease agreement. He has also argued that if the accounts are to be gone into, it is the case of the petitioner that a sum of Rs.60,384.01 or so is due from Mr. Prasad. In this case, Mr. Prasad has also undertaken to get his gratuity and other amount due from the petitioner company to him adjusted in the said deposit of Rs.3,00,000 if the respondent was not in a position to pay back the deposit amount on vacation of the premises. So it cannot be said that Mr. Prasad is a stranger to the lease agreement."

9. The second judgment cited by learned counsel for the respondent is the Division Bench judgment of Calcutta High Court in the case of J.N.ROY CHOWDHURY (TRADERS) P.LTD. VS. JAINTI ENTERPRISES 1987 (61) Company Cases 504. In that case the court after taking note of number of judgments held that where there are claims and cross-claims between a creditor seeking the winding up and a company sought to be wound up, the debt can be said to be bona fide disputed and the court will not order the winding up of the company. Winding up proceedings are not intended to be exploited as a normal alternative to the ordinary mode of debt realisation. It would be worthwhile to mention that the counter claim set up in the said case was not an admitted amount. However, such a claim, prima facie, was found to be bona fide and could not be treated as frivolous and mala fide. The court, therefore, held that once there was a prima facie case for the cross claim the winding up proceedings were not appropriate and observed:

" In our opinion, the questions sought to be raised in the instant case are questions which, if established, may constitute a valid case for the company. Whether the company will succeed in establishing its case or not will naturally depend on the result of the suit. We are fully convinced that the petitioning-creditor's debt has been disputed bona fide and there is a prima facie case for the appellant's counter claim. In view of such claims and cross claims by the parties, we are of the opinion that the learned judge was not right in admitting the petition for winding up and in giving directions for advertisement.

As we are satisfied that the appellant has raised a bona fide counter-claim against the respondent and there is no neglect to pay the alleged debt of the petitioning-creditor, the winding up proceedings cannot be allowed to proceed".

10. In support of the proposition that counter-claims could form a legitimate basis for raising bona fide dispute of the petitioner's debt the court discussed certain judgments in the following fashion:

" In the case of The Company v. Rameshwar Singh [1919] 23 CWN 844; AIR 1920 Cal 1004, the debt due to the petitioner was admitted and only a counter-claim for damages was set up and the appeal court held that the debt of the petitioner was disputed.

In the case of Federal Chemical Works Ltd., In re [1964] 34 Comp Case 963 (All), it is observed that (headnote):

" In order to raise the presumption under section 434(1) of the Companies Act,1956, as to the company's inability to pay its debts, it is not sufficient to show merely that the company has omitted to pay the debt due to the petitioner despite service of the statutory notice; it must be shown that the company has omitted to pay without reasonable excuse. It is also observed that the existence of a valid counter-claim would clearly constitute a reasonable excuse for non-payment."

11. I may point out at this stage that when the arguments were heard on 10.8.2004 the learned counsel for the petitioner could not rebut the aforesaid legal submissions of the respondent. He, however, sought time for filing written submissions and to cite some judgments for which two days time was granted. Written submissions are filed in which it is highlighted that two transactions are separate and independent having separate legal sanctity and further that the claim of the respondent in the arbitration proceedings is under adjudication at present. Relying upon the judgment in the case of Hotline Teletube and Components Ltd. Vs. A.S. Impex Ltd. 2003 (105) DLT 762 it is emphasised that in case the transaction and the amount is not denied by the respondent, mere filing of any summary suit or complaint before MRTPC is no ground to hold that admitted debt as bonafide dispute of debt. I am afraid that this judgment would be of no assistance to the petitioner in the facts of the present case. A categorical finding was recorded in that case that dispute which was sought to be raised before MRTP Commission by the respondent was not bona fide and was in fact after thought. It was also observed that respondent's inability to pay debt was proved from evidence on record as cheques issued by it were dishonoured by the bank. In this back drop the court was of the opinion that it cannot and should not postpone adjudication of right of party if on basis of evidence on record case for admission was made out. However, that is not the position in the present case. Here, the respondent's claim has already been adjudicated in one forum i.e. before an Arbitrator and has resulted in the Award. It is not merely a claim pending adjudication. May be objections are filed against this Award. But this dispute raised by the petitioner would not make the claim of the respondent lacking in bona fides. Further, the claim before the Arbitrator was not an after thought but was filed much prior to the present petition filed by the petitioner against the respondent. Moreover the Supreme Court has declined to grant any stay to the petitioner in the S.L.P.

12. From the facts of this case, it is thus clear that counter-claim can be entertained in a winding up petition and if it is found, even prima facie, a genuine counter-claim the same can form the basis of bona fide dispute of the petitioner's debt on the basis of which winding up petition is filed. When that is the legal position, application thereof to the facts of this case would not pose any problem. The counter-claim of the respondent is, prima facie, established as the same is founded on an Award made by the learned Arbitrator, which means, the basis of counter-claim is the result of legal proceedings. Even if the SLP is pending that would not render the character of the counter-claim as frivolous. On the contrary till the Award is set-aside, the amount is payable in the said Award by the petitioner to the respondent. This petition is, therefore, misconceived and is dismissed.

13. However, there shall be no orders as to costs.