Image Meditech Pvt. Ltd. vs Jay Rapid Rollers Ltd.
2004 Latest Caselaw 682 Del

JUDGMENT

A.K. Sikri, J.

1. The petitioner in this petition, filed under Sections 433(e), 434 and 439 of the Companies Act, 1956, seeks winding up order against the respondent company primarily on the ground that the respondent company is unable to pay the debts of the petitioner. As per the facts disclosed in the petition, the respondent company had business dealings with the petitioner under which it purchased Chemical items, namely, Titanium Dioxide on credit from the petitioner on different occasions as a result whereof the respondent company is indebted to the petitioner in the sum of Rs. 11,61,406. The details of this claim as on 14th July, 1999 are given in Annexure-B in the following manner:

   162 08.10.98          86324.00 
163 08.10.98          4212.00 
164 08.10.98         17264.00 
187 27.10.98        444600.00 
197 09.11.98          3100.00(BALANCE) 
251 19.01.99            14.00(BALANCE) 
267 30.01.99        194502.00(BALANCE) 
272 02.02.99        382294.00 
339 30.03.99         29096.00 
                  -------------- 
  TOTAL           11,61,406.00 
                 --------------
  
 

2. The petitioner states that the respondent company is also liable to pay interest at the rate of 24 per cent per annum from the respective due dates of the invoices till payment. It is averred in the petition that on account of the aforesaid purchases made by the respondent company the petitioner raised bill or invoice from time to time copies whereof are attached by the petitioner with the petition as Annexure-C. It is further alleged that as the respondent company did not make the payment repeated requests and demands were made. However, as a part payment one cheque of Rs. 28,750/- was issued in favor of the petitioner but even this was returned unpaid on the ground of "insufficient fund". The petitioner, in these circumstances, issued notice under Section 431(1) (a) dated 14th July, 1999 which according to the petitioner was duly served upon the respondent company on 17th July, 1999. However, it failed and neglected to pay the amount and, therefore, present petition has been filed.

3. In the reply filed by the respondent company, it is alleged that the petitioner has failed to file any documents showing an admission by the respondent company of its liability to pay the said sum of Rs. 11,16,406/- along with interest at the rate of 24 per cent per annum. It is stated that there is no acknowledgment of any such debts/bills. It is also explained that besides the amount of Rs. 28,750/-, the respondent company had also to pay a further sum of Rs. 38,114/-to the petitioner. However, the respondent company has issued a cheque in the sum of Rs. 35,000/- to the petitioner on 17th February, 2000 and therefore only an amount of Rs. 31,864/- is due to the petitioner.

4. In making this averment that there is no acknowledgment of debt, what is highlighted by the respondent company is that no document is produced to show that any such goods were supplied to the respondent company by the petitioner. It is the case of the respondent company that in none of the invoices/bills annexed there is acknowledgment of having received the goods. It is not denied by the respondent that there is no such acknowledgment of any of the bills produced by the petitioner.

5. In the rejoinder filed by the petitioner, it is stated that the goods in question which were excisable goods, had been duly accepted/acknowledged by the respondent company. This acknowledgment is primarily based on, as was argued by learned counsel for the petitioner, the allegation that on the basis of documents placed by the petitioner on record, the respondent company had claimed the duty drawbacks `Modvat credit' relying on same bills/invoices. It is, therefore, submitted that it is a false detrial made by the respondent company in its reply which amounts to a fraud which is a deliberate deception with a design to secure something by taking unfair advantage and the respondent company has not approached the court with clean hands as vital information about drawing the Modvat Credit is concealed. It was submitted that such Modvat credit could be availed only if transaction is of excisable item and it amply demonstrates that the respondent company had received the goods in question and bills raised were genuine.

6. As already pointed out above, the bills enclosed by the petitioner do not contain any acknowledgment by the respondent.

7. Therefore, the question is as to whether on the basis of purported Modvat credit allegedly obtained by the respondent company, the petitioner has been able to prove the supply of the goods. In support of this plea, the petitioner has filed on record verification form as annexure-D issued by the Office of the Superintendent, Central Excise, Range Dharuhera to the office of the Superintendent, Central Excise, Range Rajinder Place, Delhi wherein it is mentioned that the respondent is availing the facility of Modvat credit and has taken credit of the excisable inputs as given in the said form and the Excise Department was asked to confirm the authenticity of the payment of excise duty by manufacturer of the excisable inputs. The details in respect of which Modvat credit are claimed, as per this verification, are as under:

S. No Name and address of manufacture of Excisable inputs Description of excisable inputs Amount of Excise Duty paid BED SEDAED

Image Meditech (P) Ltd.

187/12.10.98 Titanioum Dioxide 45, 350/-

.

-Do-

162/18.10.98

-Do-

12,204/-

.

-Do-

272/2.2.99

-Do-

46,580/-

.

-Do-

267/30.1.99

-Do-

29,060/-

.

-Do-

251/19.1.99

-Do-

3,660/-

8. The petitioner has also filed letter dated 26th May, 2000 issued by the office of Superintendent, Central Excise to the petitioner confirming that as per the records maintained in its office bills in question had been issued by the petitioner.

9. Since the issue of drawing Modvat credit was raised by the petitioner for the first time in the rejoinder, the respondent company was permitted to file an affidavit explaining this aspect. The respondent company accordingly filed two affidavits in the process. Both by Ms. Jasmine Kaur, Assistant Company Secretary of the respondent company which are dated 30th October, 2003 and 15th March, 2004 respectively.

10. In the affidavit dated 30th October, 2003, the respondent company has tried to explain aforesaid two documents filed by the petitioner, namely, letter dated 26th May, 2000 and the verification form. The explanation given is to the following effect:

Which are bearing No.141 and 142. These are two bills for which the claimant has not made any demand, which not creating liability upon the respondent company. It is for this reason the other bills for which the demand is made, stood adjusted to the pay

11. The respondent company has also enclosed the reversal of Modvat entries in respect of bills No. 141,142,187 and 197. In the affidavit dated 15th March, 2004, attempt is made to explain that the Modvat credit entries under certain circumstances were claimed even on the mere receipt of the invoice on confirmation of goods on the way to the respondent's factory and without verification of the receipt of the actual goods pursuant thereto and as and when the instance of wrong claim of Modvat credit entries is brought to the knowledge of the concerned officer of the respondent company, the action for reversal of that entry is initiated. Such an action of reversal of Modvat credit entries is also initiated when the goods are returned or rejected. The respondent company has also pointed out that the payments which have been received by the petitioner company are wrongly adjusted to create the present demand which is apparent from the fact that against claim of bills No. 197, 251 and 267 petitioner is mentioning `balance amount and not invoices amount' without mentioning receipt of the exact amount against these invoices leading to the claimed balance.

12. The respondent company has also annexed copy of application dated 6th December, 2003 filed with the Central Excise Department on 10th December, 2003 stating that it had reversed the Modvat credit claim in respect of bills No. 141, 142, 187 and 197 on 22nd November, 2000 and sought confirmation of the reversal of Modvat credit in that behalf.

13. The case of the petitioner, deducible from the aforesaid pleadings is that certain materials are supplied to the respondent company by means of three invoices raised. However, there is no proof of receipt of the seven invoices by the respondent company. The petitioner has been able to show the receipt of the goods by the respondent company against five bills, namely, Bill Nos. 187, 162, 272, 267 and 251 as the respondent company has admitted the receipt of these invoices and also admitted that Modvat credit was claimed. In so far as other invoices are concerned, the definite evidence is not coming on record and it cannot be said that the petitioner has been able to establish any debt payable in respect thereof. Admittedly, the petitioner has failed to produce statement of accounts. Further the petitioner has also not explained as to whether any Modvat credit was claimed in respect of other bills than the five bills mentioned in the verification form produced by the petitioner. If the petitioner would find out that the respondent company had claimed Modvat credit in respect of five bills it could have made efforts to find out such details in respect of other bills as well. Therefore, in respect of rest of the bills as the petitioner has not been able to show any acknowledgment on record, it cannot be said that any debt in respect of these bills is payable by the respondent company.

14. As far as aforesaid five bills in respect of which Modvat credit is claimed by the respondent company, we now deal with the defense of the respondent company. Let me start with highlighting the conduct of the respondent company in this regard. In the reply filed initially to the petition there is only a denial of the acknowledgment/admission of the liability and averment is made to the effect that the bills which are annexed by the petitioner are not acknowledged by the respondent company. The respondent company has not signed those bills anywhere evidencing receipt of the goods. It is further stated that the respondent company had to pay a sum of Rs. 66,864/- only [Rs. 28,750/-+ Rs. 38,114/-) out of which Rs. 35,000/- was paid. It is accepted that a cheque in the sum of Rs. 28,750/- was given which was dishonoured but it is explained away by alleging that in lieu thereof an amount of Rs.35,000/- was paid. How according to the respondent company only a sum of Rs. 66,864/- was payable is not explained. It was against which supplies? What were the particulars of those bills/invoices? What was the amount of those invoices and how much payment was made leaving a balance of Rs. 31,864/- after making the payment of Rs. 35,000/-? To put it simply, the respondent company has not produced its own statement of accounts in support of the aforesaid plea.

15. The respondent company was silent about the receipt of invoices in its reply dated 6th January, 2001. It only said that it has not acknowledged debt/bills. However, when the petitioner disclosed in the rejoinder that the respondent company had claimed Modvat credit, the respondent company while trying to explain these entries has accepted in the additional affidavit, the receipt of at least those five bills/invoices in respect of which Modvat credit entry was claimed. The explanation which is coming forward is that even on receipt of these bills/invoices drawbacks were claimed but they were later on reversed. It is pointed out that the alleged practice of claiming such invoices mere on their receipt and on confirmation of the goods on the way. Thus in the affidavits general practice is mentioned that such Modvat credit is claimed on mere receipt of invoices which is stated in the following manner:

(sic)ce of wrong claim of MODVAT credit is brought to the knowledge of the concerned officer of the Respondent company, the action for reversal of that entry is initiated. Such action of reversal of MODVT is also initiated when the goods are returned or rejected

16. However, what actually happened in the present case is not explained. The respondent company admits that it received the invoices in respect of which Modvat credit was claimed and there is also an admission that the goods were on the way to its factory. However, it is not stated as to whether the goods were actually received or not or if received whether they were rejected and returned. To put it otherwise, the respondent company is conspicuously silent as to under what circumstances reversal of Modvat credit was initiated in this particular case. If the goods were not received at all whether any letter was written by the respondent company to the petitioner in this respect? If the goods were received and found to be defective whether there is any correspondence regarding rejection and return of those goods?

17. In this backdrop, it would be interesting to note that this petition was filed on 24th September, 1999 and notice to show cause was issued on 12th October, 1999 for 4th February, 2000 which was duly received by the respondent company. The action of reversal of Modvat credit starts in November, 2000. The bills in question are for the period from October, 1998 to March, 1999. Modvat credit in respect of five bills which is claimed by the respondent company are from October, 1998 to January, 1999. In the goods were not received at all or if the goods were defective and returned, why action of reversal was not taken immediately thereafter and it took almost two years in doing so. That too, after the filing of present winding up petition and receiving notice thereof from the court. Another factor which bears importance is that legal notice of demand dated 14th July, 1999 issued by the petitioner to the respondent company and duly received by the respondent company was not even replied to. If what is stated now before the court is correct, what prevented the respondent company from explaining this position by replying to the notice and at least by denying the payment due?

18.The facts mentioned above would clearly show that there is an improvement made by the respondent company in their stand at each stage. Initially, notice is not replied to. Thereafter, the respondent company chose to remain beautifully vague and vaguely denied the receipt of invoices stating that it had not acknowledged the same in its reply dated 6th January, 2001 and many aspects were not adverted to as pointed out above. When the petitioner confronted the respondent company with its action of claiming Modvat credit and the respondent company now could not deny the receipt of invoices, it came out with a story which does not inspire confidence. In the first instance, it is stated that the Modvat credit was claimed merely on the receipt of invoices (now there is an admission about the receipt of invoices as it could not be denied in the face of claim of Modvat credit). This itself is questionable as to whether merely on the receipt of invoices Modvat credit can be claimed. Then, the purported general practice is stated without explaining what actually happened in the instant case i.e. whether the goods were not received at all or were received and rejected.

19. On the other hand, the petitioner has filed letter dated 26th May, 2000 issued by the office of Superintendent, Central Excise confirming issuance of all nine bills in respect of which present petition is filed. Perusal of these bills would show that

20. Thus the conclusion that emerges from the aforesaid discussion is that out of the nine bills the petitioner has been able to prove the delivery of goods only in respect of five bills where against Modvat credit was claimed by the respondent company.

As there is no acknowledgment anywhere in respect of other four bills and the petitioner has not produced any other evidence/books of accounts in its possession and has also not been able to prove that any Modvat credit was claimed, the claim in respect of four bills would be treated as disputed. In respect of five bills as the Modvat credit was claimed by the respondent company and it has admittedly receipt of these invoices it can be safely inferred that the goods were received by the respondent company and onus was on the respondent company to prove to the contrary. However, as explained above, the respondent company has miserably failed to give satisfactory explanation about the same. It is not even stated as to whether the goods were not receive or were received but found defective. Such a vague averment stating general practice without even explaining the transaction in question is clearly an after thought and make belief.

21. I, therefore, hold that undisputed debt in respect of these five bills amounting to Rs. 11,07,734/- is payable by the respondent company. This petition is accordingly admitted. Citation be published in Statesman (English) and Jansatta (Hindi). However, publication of the citation and appointment of Provisional Liquidator is deferred and one opportunity is given to the respondent company to pay this amount to the petitioner along with interest fixed at the rate of 8 per cent per annum with effect from 14th July, 1999 when the notice was served on the respondent company. The amount be paid within one month failing which the petitioner shall be entitled to publish the citation and apply for the appointment of Provisional Liquidator.

22. List for further directions on 8th September, 2004.