Sh. Roshan Lal Goyal vs Arti Solvex Limited
2005 Latest Caselaw 559 Del

JUDGMENT

A.K. Sikri, J.

1. The petitioner, as per the averments made in this petition, has to recover a sum of Rs.8,68,656.49 paise from the respondent (hereinafter referred to as `the company'). After adding interest calculated at the rate of 19.2 per cent per annum amounting to Rs.9,56,551.30 paise, the total claim is for Rs.18,15,207.79 paise. The petitioner states that it has been supplying the company diverse quantities of mustard (Sarson seeds) against various bills, particulars whereof are given in para 7 of the petition. The company has been making payments from time to time. But complete payment was not made and the aforesaid outstanding amount is still due. The company has even confirmed this amount from time to time as is evident from the balance sheets of the company, including for the year ending 31st March, 1998. Accordingly, the legal notice dated 28th March, 2001 was served demanding the aforesaid amount but as the company failed to make the payment, present petition has been filed.

2. In the reply filed by the company, aforesaid facts are not disputed. However, the company states that the petition is not maintainable and the claim is not payable and in this behalf following defense is raised:

(a) Demand notice was sent on 28th March, 2001 and on the same day this petition was filed. It is the submission that in notice under Section 434 of the Companies Act, 1956 (for short `the Act'), three weeks' time has to be given to the company to make the payment and before the expiry of three weeks cause of action does not arise as only if there was failure to make the payment, it gives cause to the petitioner to send the notice.

(b) The claim is time barred as, according to the petitioner itself, as stated in para 8, last payment was made on 9th July, 1997 whereas the present petition was filed on 28th March, 2001 i.e. more than three years from the aforesaid date. Submission was that there was no transaction between the parties after 9th July, 1997.

(c) The company is solvent and able to pay its debts. In the present case, because of bona fide disputes, the amount is not paid to the petitioner and it cannot be treated that there is any debt payable.

(d) On merits, the company has sought to explain that there were various creditors of the company and meeting of these creditors took place who formed a consortium and it was decided in the said meeting that all these creditors would get only 50 per cent of the amount due to them. According to the company, the petitioner is also party to the said decision. Therefore, the petitioner is entitled to 50 per cent of the principal sum i.e. Rs.4,34,328.24 paise, which has already been paid and, therefore, no further amount is payable.

3. It is this defense, therefore, which calls for consideration and arguments were addressed by both the parties on these aspects.

4. Let me first advert to the two preliminary objections raised by the company to the maintainability of the petition and noted above as paras 2(a) & 2(b).

5. Admittedly, the demand notice was sent on 28th March, 2001 and this petition was also filed on that day in this court. Whether it was mandatory for the petitioner to wait for three weeks from the date of receipt of notice before filing the petition?

6. Learned counsel for the petitioner submitted that although the petition was filed on 28th March, 2001, it came up for the preliminary/first hearing only on 23rd April, 2001 on which date it was simply adjourned to 1st May, 2001 and notice to show cause notice was issued by this court on 1st May, 2001. It was his submission that Section 434 requires giving of three weeks' time to the addressee company to pay up the debt and draws a presumption that the company is not able to pay the debts in case it neglects to pay the sum demanded for three weeks after the receipt of the notice. In the instant case, when the petition came up for hearing on 1st May, 2001, three weeks' time had already expired and the company had not made any payment by then. This would, according to learned counsel for the petitioner, constitute sufficient compliance and it is nowhere provided that the petition itself has to be filed after the lapse of three weeks from the date of receipt of such a notice. He tried to draw analogy from Section 80 of the Code of Civil Procedure (CPC) which requires 60 days' notice of demand to the Government and certain other authorities before filing a suit. While interpreting this provision, the courts have ruled that it is not necessary to wait for a period of 60 days before filing the suit which can be filed earlier to save limitation.

7. Learned counsel for the company, on the other hand, submitted that Section 434, which was deeming provision, would come into play only if conditions laid down therein are satisfied i.e. it would be deemed that a company is unable to pay its debts only if the said company has neglected to pay the sum for three weeks after the notice is sent by the registered post or otherwise at the registered office of the company making demand to pay the sum so due. Therefore, it would follow that the petition could not have been filed without giving three weeks' time after the service of notice and as on the date of filing of the petition there was no cause of action in favor of the petitioner.

8. I do not agree with the submission of learned counsel for the company. Section 433 stipulates various circumstances in which a company may be ordered to be wound up and clause (e) thereof, with which we are concerned, would be attracted if the company is unable to pay its debts. When a company would be deemed to be unable to pay its debts is stipulated in Section 434. Clause (a) sub-section (1) thereof, which is relevant for our purposes, reads as under:

434. Company when deemed unable to pay its debts. - (1) A company shall be deemed to be unable to pay its debts-

(a) If a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding [one lakh rupees] then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor.

9. No doubt before attracting deeming provision, following conditions are to be satisfied as per this clause:

(i) A creditor to whom the company is indebted has served on the company a notice of demand.

(ii) The notice of demand is served by causing it to be delivered at its registered office of the company.

(iii) Service has to be by registered post or otherwise.

(iv) The company to whom the notice is served should be indented in a sum exceeding one lakh rupees then issued.

(v) The demand should be made in the said notice requiring the company to pay the sum so due.

(vi) The company has for three weeks thereafter neglected to pay the sum , or to secure or compound for it to the reasonable satisfaction of the creditor.

10. There is no dispute about the service of notice in the manner prescribed at the registered office of the company demanding the amount which is more than Rs.1 lakh. However, before waiting for three weeks to expire present petition was filed. Whether it was not permissible for the petitioner to file such a petition before the expiry of three weeks? The language of clause (a) of Section 434 does not suggest so. It is trite law that if the debt has become time barred, the company petition cannot be filed for winding up of the company on the basis of such a debt. Therefore, in order to save the limitation, a creditor may have to file a petition before the expiration of three weeks from the date of service of notice. The relevant aspect which is to be considered is that whether three weeks ' time was given to the company to pay up the sum. Naturally, the company was unaware of such a petition having been filed by the petitioner. The company was duly served with the notice but it neglected to pay the sum for three weeks. The petition came up for hearing only after the expiry of three weeks. Thus when the petition came up for hearing this condition had also been satisfied and on that date deeming provision contained in Section 434 could be invoked.

11. There are judgments galore holding that it is not necessary to given 21 days' time specifically to the company to pay up the debt and even if short notice is given or time is given but the creditor has waited for three weeks that would be sufficient compliance of Section 434. [Refer: Babu Ram and Anr. v. Krishna Bharadwaj Cold Store & General Mills Co.(Private).Ltd.and Ors., 1965 (II) C.L.J. 215, N.K.Gossain and Co.Pvt. Ltd. v. Dytron (India) Ltd., 1990 Vol.69 Company Cases 757]. Although these judgments may not be directly applicable to the fact situation as question is not of giving time in the notice but the question is as to whether the petition can be filed before the expiration of 21 days. However, sustenance which can be drawn from these judgments is that once three weeks' time is allowed to elapse even not specifically mentioned in the notice and the petition is maintainable, it would be maintainable when the three weeks' time is allowed to elapse before the petition comes up for hearing and notice is issued if by that time three weeks have elapsed and the company has neglected to pay.

12. Learned counsel for the petitioner is right when he contends that analogy of Section 80 of CPC can be drawn in such cases. Section 80 CPC is couched in the following language:

80. Notice- [(1)] [Save as otherwise provided in sub-section (2), no suit [shall be instituted] against the Government (including the Government of the State of Jammu and Kashmir)] or against a public officer in respect of any act purporting to be done by such public officer in his official capacity, until the expiration of two months next after notice in writing has been [delivered to, or left at the office of -

(a) in the case of a suit against the Central Government. [except where it relates to a railway], a Secretary to that Government;

13. Interpreting this section, the courts have held the view that suit can be filed even before the expiry of 60 days from the date of service of notice to the Government etc. The law was discussed by the Supreme Court in the case of Amar Chand Jnani v. Union of India reported as in the following manner:

"Para 7: Section 80 of the Civil Procedure Code provides, among other things, that no suit shall be instituted against the Central Government, where it relates to a Railway, until the expiration of two months next after notice in writing has been delivered to or left at the office of the General Manager. It was not open to the plaintiff-appellant to wait till the 29th of December, 1958, for delivery of the notice and say that till the expiration of the two months from that date, no suit could be filed and that the suit is therefore, within the period of limitation though filed after 1 year and 2 months from the date when the injury was committed. Section 80 only prescribes a condition precedent for the institution of the suit and has nothing to do with the period of limitation for a suit except that under Section 15(2) of the Act, the period of notice can be deducted in calculating the period of limitation."

14. Therefore, I do not agree with the contention of the company that the petition should be dismissed on this ground.

15. There is no merit in the second objection raised by the counsel for the company, namely, claim is time barred. This contention of the company is based on the ground that last payment was made on 9th July, 1997 whereas the present petition was filed on 28th March, 2001 i.e. more than three years from the date of last payment and, therefore it is time barred more so when there was no transaction between the parties after 9th July, 1997. However, in the process the company is trying to gloss over another important facet. In the balance sheet of the company as on 31st March, 1998 a sum of Rs.8,68,656.49 paise is shown as the liability towards the petitioner. This entry in the balance sheet would constitute sufficient acknowledgment of the debt by the company. [Refer: Rishi Pal Gupta v. S.J.Knitting & Finishing Mills , .]

16. If three years' period is to be counted from 31st March, 1998 the petition would be well within time.

17. As the petitioner has been able to successfully get over the preliminary hurdles created by the company, I deal with the matter on merits, namely, whether the company has been able to put up a defense which is bona fide and needs trial in the civil court?

18. I may state at the outset that there is no denial of the supplies made by the petitioner to the company which were made for a total amount of Rs.23,18,656.49 paise. It is also not denied that for these supplies the company also issued ST-15 forms. Against this the company paid a sum of Rs.14,50,000/- leaving a balance of Rs.8,68,656.49 paise. This balance is duly reflected in the balance sheet of the company itself. The receipt of statutory notice is also not denied and it is also not in dispute that for more than three weeks after the receipt of the notice the company did not pay the amount demanded. The defense of the company is, however, on altogether different lines. It is stated that there was a meeting of the creditors of the company on 15th January, 1998 and in that meeting all the creditors agreed to accept 50 per cent of the amount due to them and, therefore, as per the arrangement worked out between the company and the creditors, the petitioner was entitled to 50 per cent of the sum claimed by the petitioner which was paid to the petitioner and no further amount is due. Reliance is placed on list of creditors filed by the company along with its reply wherein the petitioner is shown to have agreed to 50 per cent of the principal amount i.e. Rs. 4,34,328.24 paise. The petitioner, however, has not accepted this document. Admittedly, no signature of the petitioner appears on this list. It may be mentioned that the so-called meeting of the creditors held on 15th January, 1998 is not pursuant to any directions given by the Company Court in a petition under Section 391 of the Companies Act, 1956. There was no scheme propounded before the court or sanctioned by the court under these provisions. Therefore, even if there was any such meeting of the creditors and the creditors present there agreed to accept 50 per cent of the demand issued to them, such an agreement would be binding only on the parties concerned and not on other creditors which did not accept this so-called arrangement. The petitioner has filed an affidavit dated 3rd September, 2002 calling upon the company to disclose the original list. But the same has not been filed by the respondent inspite thereof. The company should have come with the original list particularly when the petitioner has challenged the veracity of this document. That apart, in para 5 of this affidavit the petitioner has also mentioned names of certain creditors who were made full payment by the company. This averment also remains undisputed.

19. In any case, this aspect of the matter has already been judicially determined by the Punjab & Haryana High Court. Precisely same defense was set up by the sister concern of the respondent, namely, M/s Arti Foods Pvt.Ltd. in a petition which was filed by the present petition in that court. The defense was rejected in the following manner:

"The respondent is a registered company and if it wanted to formulate any scheme with the secured or unsecured creditors, it was obligatory, upon it to take the permission of this court for arranging a meeting of the secured or unsecured creditors. Further, it was obligatory to circulate an agenda. Also it was necessary to circulate public notice. A reading of the minutes would show that there was no signature of any authorised representative of the petitioner as to whether who appeared on behalf of Munshi Ram Om Prakash, whether he was a partner/clerk or Karinda. There are no signatures of anybody on behalf of Messrs Munshi Ram Om Prakash or on behalf of Ram Lal Lattu Ram. Of course, there were some signatures. Had there been any compromise or settlement or arrangement, the new management would have taken something in writing from the side of the petitioner. In the absence of any such prima facie documentary evidence, it is difficult for me to hold that there is any friable defense. Any meeting of the unsecured creditors which has no legal sanctity behind it, cannot be looked into."

20. The matter was carried in appeal. On 9th January, 2002, the division Bench of the Punjab & Haryana High Court dismissed the appeal.

21. I agree with the aforesaid observations of the Punjab & Haryana High Court and I am inclined to hold that there was no such agreement between the petitioner and the company whereby the petitioner agreed to accept 50 per cent of the principal amount.

22. Last contention of the company was that the company is solvent and is able to pay its debts and, therefore, present petition for winding up should not be entertained. This argument need not detain us even for a moment as two rules which have been settled by catena of judgments are :

(a) If the debt is bona fide disputed and the defense is substantial one the court will not wind up the company.

(b) It is equally true that 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 that particular debt.

23. Therefore, I am of the opinion that the company is indebted to pay the sum of Rs. 8,68,656.49 paise to the petitioner. It may be noted that vide order dated 14th November, 2003, the company had deposited Rs.2 lacs in this court. Thereafter order dated 20th May, 2004 was passed directing the company to deposit the balance principal amount with simple interest at the rate of 12 per cent per annum from 1st April, 1998 calculated on Rs.8,68,656.49 paise which amount is also deposited by the company. Since the balance amount with 12 per cent interest has already been deposited in this court, the petitioner shall be entitled to withdraw the amount along with the interest that may have accrued thereon by keeping the same in fixed deposit by the registry of this court. With the receipt of this amount the petitioner would get the entire debt payable to it. This petition is, therefore, disposed of with aforesaid directions leaving the parties to bear their own costs.