Technofab Engineering Ltd. vs Nuchem Weir India Ltd.
2006 Latest Caselaw 2263 Del

JUDGMENT

Sanjiv Khanna, J.

1. M/s Technofab Engineering Limited (hereinafter referred to as the petitioner) has filed the present petition for winding up of M/s Nuchem Weir India Limited, formerly known as M/s Nuchem Weir Limited, (hereinafter referred to as the respondent company). This petition has been filed under Sections 433(e), 434 and 439 of the Companies Act, 1956 (hereinafter referred to as the Act) on the ground that the respondent company is unable to pay it's debt due. The petitioner company was awarded three contracts by the respondent for fabrication of Sewage Water Treatment Plant at a power station site in basin bridge. The total value of the three contracts was Rs. 235/- lacs. These contracts were dated 12th March, 1998, 15th March, 1998 and 18th March, 1998.

2. It is the case of the petitioner that some extra work was also done. Learned Counsel for the parties admitted that a meeting dated 3rd May, 1999 was held between the officers of the petitioner and the respondent company and it was agreed that in view of extra work done, the order value of the three contracts stood increased to Rs. 245/- lacs from Rs. 235/- lacs. The parties also agreed that Rs. 206.77 lacs had already been paid by the respondent company to the petitioner as per the reconciled statement of accounts including adjustment of Rs. 3,29,298/- as claimed by the respondent company. Deductions/debit notes of Rs. 14,95,009/- issued by the respondent company were withdrawn. The petitioner agreed to make payment of Rs. 7,00,000/- to a third party and thus it was considered that total payment of Rs. 213.77 lacs had been made, leaving a balance of Rs. 31,86,009.77, to be paid to the petitioner by the Respondent Company. The minutes of the said meeting are duly signed by the officers of the petitioner and the respondent company and are not denied.

3. The aforesaid minutes dated 3rd May, 1999 state that the payment schedule for releasing the aforesaid payment of Rs. 31,86,009.77 would be discussed within one or two days.

4. Thereafter, the respondent company made payment of Rs. 5,00,000/- each (total Rs. 10 lacs) by two cheques dated 15th October, 1999 and 28th October, 1999 along with their letter dated 9th October, 1999. These cheques when presented were dishonoured and a complaint was filed under Section 138 of the Negotiable Instruments Act. The complaint ultimately got settled as compromised with the respondent company making payment of Rs. 11,63,917/- against two cheques of Rs. 10,00,000/-. The order recording compromise before the criminal court is dated 15th July, 2002. It is the case of the petitioner that after adjusting the above payment towards Rs. 10,00,000/-, a further sum of Rs. 21,86,009.77 is due and payable to the petitioner. As the respondent company has failed to make the said payment, notice under Section 434(1)(a) dated 1st September, 2004 was issued and on failure to make the payment or even reply, the present winding up petition against the respondent company has been filed.

5. While opposing the present petition, learned Counsel for the respondent company has raised five objections. Firstly, the petition as filed is not for a debt due, as it is barred by limitation. Secondly, the minutes of the meeting dated 3rd May, 1999 cannot be regarded as an acknowledgment of the debt due and payable by the respondent company to the petitioner. The statements made in the minutes are conditional. Thirdly, there was full and final settlement and compromise resulting in payment of Rs. 11,63,917/- before the criminal court and thus no debt is due and payable. Fourthly, bona fide disputes have been raised by the respondent company and in this regard reference was made to the reply of letter dated 10th January, 2000 and some correspondence exchanged thereafter. Lastly, it is submitted that the petition has not been filed by the duly authorised person on behalf of the petitioner and affidavit in support is not in terms of the Rules and, therefore, the petition is liable to be dismissed.

6. To decide the question of limitation, some dates may be noticed. The three contracts were awarded to the petitioner vide letters dated 12th March, 1998, 15th March, 1998 and 18th March, 1998. The respondent, it is admitted issued two cheques for Rs. 5,00,000/- each dated 15th October, 1999 and 28th October, 1999. These cheques when presented were dishonoured and subsequently payments of Rs. 11,63,917/- were made before the criminal court in proceedings initiated under Section 138 of the Negotiable Instruments Act with the last payment made on 15th July, 2002. As a result of the said payments, the criminal complaint was dismissed as withdrawn.

7. Section 19 of the Limitation Act states that when payment on account of debt or interest or a legacy is made before expiration of the prescribed period, by the person liable to pay the debt or by an agent duly authorised on his behalf, a fresh period of limitation shall be computed from the time when the payment is made. This Court in the case of Rajesh Kumari v. Prem Chand Jain examined the expression "payment" used in Section 19 of the Limitation Act and relying upon decisions of the Supreme Court and High Courts held that issuance of a cheque by a debtor is "payment on account of a debt or interest" and extends the period of limitation by further period of three years from the date of issue of cheque, even if the said cheque on presentation is dishonoured. Dishonour of the cheque, it has been held does not result in extinguishing the liability of the debtor and constitutes effective "payment" for the purpose of Section 19 of the Limitation Act. Once "payment by cheque" is accepted by the creditor, he is entitled to extended period of limitation under Section 19 of the Limitation Act and the said advantage cannot be wiped off and undone by tortuous act of the other side by withholding payment. Thus, it has to be held that the respondent company had made part payment in terms of Section 19 of the Limitation Act, when it had issued two cheques dated 15th October, 1999 and 28th October, 1999 for Rs. 5,00,000/- each. Even if the said cheques were dishonoured on presentation, fresh period of limitation would commence from the date the said cheques were issued, i.e. on 15th October, 1999 and 28th October, 1999 in view of Section 19 of the Limitation Act. Admittedly, thereafter the respondent company has made further payment of Rs. 11,63,917/- on or about 15th July, 2002, which is again within a period of three years, i.e. "from the date of last payment" made by two cheques dated 15th October, 1999 and 28th October, 1999. The present company petition was filed on 13th July, 2005 and is, therefore, within the limitation period of three years.

8. Learned Counsel appearing for the respondent has also submitted that the minutes of the meeting dated 3rd May, 1999 cannot be construed as acknowledgment of a debt or an admission on the part of the respondent company. I do not agree. The fact that the three contracts were awarded to the petitioner vide letters dated 12th March, 1998, 15th March, 1998 and 18th March, 1998 is undisputed. The fact that, Rs. 235/- lacs was to be paid by the respondent company to the petitioner for executing the contracts is not doubted. It is also not disputed that the petitioner had completed the work awarded under the contracts. The respondent company has admitted that some additional work was also done and it was agreed that the value of the contract awarded vide letter dated 12th March, 1998 was enhanced from Rs. 55,00,000/- to Rs. 65,00,000/- and the total amount payable was Rs. 245/- lacs instead of Rs. 235 lacs as per the original contracts. The minutes of the meeting dated 3rd May, 1999 specifically records the total amount due and payable by the respondent company to the petitioner, i.e. Rs. 245/- lacs, and the total amount reconciled as paid, (including adjustments of Rs. 3,29,928/- and Rs. 7,00,000/-). Paragraphs 8 and 9 of the said minutes of the meeting are relevant and for better appreciation of the question are reproduced below:

Accordingly, the total amount payable to TEL by NWL against the various works listed above are as per the following details:

 Sr. No.     Point No.          Value (Rs.)
01.           02             2,45,00,000.00
02.            6                  43,246.17
03.            7                  20,201.00
                            ------------------
Total amount receivable by = 2,45,63,447.17
TEL from NWL

 

Based on the above, the balance outstanding amount to be paid to TEL by NWL shall be as follows:
                                                       Amount(Rs)
Total Value receivable by TEL from NWL            2,45,63,447.17
Amount already received till date by TEL from NWL 2,13,77,437.40 
Balance amount payable by NWL to TEL for the 
jobs mentioned in this IOM.                         31,86,009.77

 

9.Learned counsel for the respondent has relied upon paragraph 3 of the minutes of the meeting dated 3rd May, 1999, which reads as under:

TEL & NWL have reconciled the total receipts by TEL from NWL against this job and the amount comes to Rs. 2,06,77,437.40 including Rs. 3,29,928/- which has been adjusted on behalf of TTIL. However, the final figure shall be established jointly by TEL and NWL, for which Mr. R.K. Sethi from TEL shall sit with Mr. Rajiv Behl of NWL at NWL office on 4th May, 1999 and confirm the figure." (TEL and NWL stand for the petitioner and the respondent company respectively).

10. He has also referred to judgment of this Court in the case of Hansa Industries (P) Limited v. MMTC Limited 2004 VI AD (Delhi) 222.

11. Paragraph 3 of the minutes of the meeting dated 3rd May, 1999 does not help the case of the respondent company. The said paragraph as reproduced above first states that total payments made by the respondent company to the petitioner have been reconciled and the amount paid was Rs. 2,06,77,437.40 including adjustment of Rs. 3,29,928/-. No doubt, in the said paragraph it has also been recorded that they shall be further meeting on 4th May, 1999, when the figure will be confirmed but the respondent company has not placed on record any document or evidence to show that this figure was not confirmed or was disputed at any time thereafter. Even before this Court, no evidence or material has been filed to show that any payments in excess of Rs. 2,06,77,437.40 had been made. No letter was written by the respondent company disputing this figure or claiming that any other additional amount was paid to the petitioner. This Court in the case of Hansa Industries (supra) was examining Section 18 of the Limitation Act and the requirements of a valid acknowledgment, which when issued extends the period of limitation. With reference to the said Section, this Court has laid down several principles which have to be applied to ascertain whether a writing constitutes an acknowledgment for the purpose of Section 18 of the Limitation Act. Even if we apply the principles laid down in the said judgment, the minutes of the meeting dated 3rd May, 1999 would constitute an acknowledgment. This is clear from paragraphs 8 and 9 of the minutes reproduced above. In Hansa Industries case (supra) this Court also noticed that the statement, on which the plea of acknowledgment is based, should relate to the present existing liability though the exact nature or specific character may not be indicated. Intention of the parties can be implied and need not be expressed in words. Liberal construction has to be given but the Court cannot fasten intention to the admitted existence of jural relationship.

12. Learned Counsel for the respondent company had also submitted that there was delay on the part of the petitioner and, therefore, it can be presumed that the petitioner had abandoned the claim because of his lackadaisical attitude. I again do not agree. As already indicated above, the claim of the petitioner is within limitation. The winding up petition cannot be dismissed on the ground that the petitioner had not corresponded or written letters, even if the petition is within limitation period. I may mention here that criminal proceedings were initiated pursuant to dishonour of two cheques dated 15th October, 1999 and 28th October, 1999. These proceedings under Section 138 of the Negotiable Instruments Act were compromised and settled on 15th July, 2002. Section 433(e) of the Act can be invoked when a debt is due. Section 434 incorporates deeming provisions. The said provisions do not compel a party to initiate immediate legal proceedings. Legal action under the provisions of the Act is valid if it is initiated within the limitation period. A person cannot be non-suited on the ground of delay or laches so long as the petition is within the imitation period prescribed by law. Litigation is expensive, tedious and many law abiding citizens want to avoid courts, and initiating litigation as far as possible. It is not the first but the last choice.

13. Learned Counsel for the respondent had also drawn my attention to the letters written with effect from 10th January, 2000 stating that there were various defects in the workmanship, which was faulty and defective material had been supplied and used. He also relied upon letter dated 15th March, 1999 stating that there was delay and the petitioner had failed to abide by the terms and conditions of the work orders. The above letters lose their significance and relevance in view of the minutes of the meeting dated 3rd May, 1999, wherein the entire controversy and pending issues were resolved. In the said meeting, the question of debit notes deductions of Rs. 14,95,009/- raised by the respondent company was also considered and the explanation/reasons given by the petitioner were accepted.

14. The letters 10th January, 2000 onwards have been written only after the two cheques for Rs. 5,00,000/- each dated 15th October, 1999 and 28th October, 1999 were issued. These cheques had bounced when presented for payment.

15. Moreover, the respondent vide their letter dated 31st July, 2000 while referring to the earlier letter had pointed out that service water line was leaking and requires replacement. Rs. 3,80,805/- was demanded from the petitioner towards cost of material, labour charges and 30% charges for handling and supervision to carry out the said work at the risk and cost of the petitioner. Having quantified Rs. 3,80,805/- as the amount due and payable by the petitioner towards cost of repairs at the risk and cost of the petitioner, the respondent company at the highest is entitled to set off the said figure. No further deductions or allowance can be granted. The petitioner has also enclosed with the petition, letters of appreciation written by the principal employer appreciating the work done by the petitioner at the said plant. The said letters are dated 8th March, 1999 and 15th March, 1999. In view of the above, it is held that the respondent company at the most is entitled to claim deduction of Rs. 3,80,805/- towards the counter claims/set off from the amount due and payable by the respondent company to the petitioner. It is only to this extent, it can be said that the respondent company has raised a bona fide dispute along with the photographs, which have been filed on record. The date when these photographs were taken cannot be ascertained and since the equipment was installed nearly 6-7 years back, upkeep and maintenance was/is required. In view of the respondent's own letter that Rs. 3,80,805/- was required for repairs etc., it cannot be said that the respondent company is liable to set off the entire amount of Rs. 20,35,876.27/-.

16. Learned Counsel for the respondent has also relied upon the case of Mediquip Systems (P) Ltd. v. Proxima Mdical System GMBH and Madhya Pradesh Iron & Steel Company v. Sikands Ltd. . In both judgments, it has been reiterated that for winding up petition under Section 433(e) there must be a debt due and the company must be unable to pay the same and the debt due must be a determined or a definite sum of money payable immediately or at a future date. It is also well settled that winding up petition is not a legitimate method for seeking enforcement for payment of a debt, which is bona fidely disputed by the company. The Supreme Court and Delhi High Court have referred to the earlier judgment of the Supreme Court in the case of Madhusudan Govardhandas & CO. v. Madhu Woollen Industries (P) Ltd. reported in (1972) 42 Company Cases 125, in which it has been held that if the respondent company raises a bona fide dispute and the defense is substantial one, the Court cannot wind up the company. The defense, however, should be one which is likely to succeed on the point of law and company is required to adduce material and prima facie establish all the facts on which the defense is based. These judgments do not in any manner support the case of the respondent company and since defense of the respondent company is not one of substance and genuine, petition of winding up is maintainable. In the case of Madhusudan Govardhan Das (supra), the Supreme Court has further clarified that where a debt is undisputed, the Court will not act upon the defense of the company that it has ability to pay the same but it has not paid the same. The three factors/principles as per the decision of the Supreme Court in Madhusudan Gordhadas (supra) are that (i) the defense has been raised in good faith and in substance, (ii) the defense is likely to succeed in the point of law, and (iii) the respondent companies have adduced prima facie proof of the facts on which the defense depends. Contumacious or deliberate refusal to pay lawful debts is not an answer to a winding up petition. The subsumption of the statutory provisions is that no rational and solvent person shall not repay his debt, if he has ability to pay. Failure to pay is presumptive proof of insovency. It may be stated here that Section 434(1)(a) incorporates a deeming provision, which gets attracted when notice is given but the company does not act within the statutory period of 3 weeks and neglects to make payment. Neglect to pay is not a defense to a winding up petition.

17. The petitioner has also along with the rejoinder filed certified copies of balance sheets and accounts of the respondent company for the year ending 31st March, 2000, 2001 and 2004. As per the balance sheet for the year 2003-04, the cumulative losses of the company are more than 50% of its net worth. However, being a small scale industry, statutory provisions of Sick Industrial Companies (Special Provisions) Act, 1985 are not applicable. The company has taken loans of Rs. 75.95 lacs from the banks and has given a counter guarantee of Rs. 500/- lacs on behalf of the sister company Nuchem Limited. Besides, it has also been mentioned in the notes of accounts that the financial institution has recalled the loan.

18. The contention of the respondent that the petition has not been filed by a duly authorised person is also liable to be rejected in view of the order dated 2nd August, 2006. In the said order reference was made to Section 196 of the Contract Act and the Judgment of the Supreme Court in the case of Bank of India v. Naresh Kumar AIR 1997 SC 3.

19. The respondent had also argued that payment of Rs. 11,63,917/- made in July, 2002 was in full and final settlement and therefore no debt is due and payable. As stated above, the respondent had given two cheques of Rs. 5 lakhs each which were dishonoured and thereafter criminal complaint under Section 138 of the Negotiable Instruments Act was filed before the Metropolitan Magistrate. The complaint was settled vide Order dated 15th July, 2002 before the Metropolitan Magistrate which reads as under:

Both the parties submits that they arrived a compromise and settled the matter and accused has agreed to pay a sum of Rs. 11,63,917/- in satisfaction of the entire claim of the complainants out of this said amount the cheque of Rs. 55,741/- of the bank ICICI Bank bearing No. 509832 Dt. 15.7.02 and the said cheque will be replaced by the accused person by way of DD on 16.7.02. The settled amount agreed to be given by the accused included the cheque in the complainant and compensation of Rs. 1,63,917/-.

In view of the above settlement, the complainant wants to withdrawn this complaint subject to replacement of the cheque dated 15.7.02 by the demand draft of the said cheque.

20. Subsequently, the respondent wrote letter dated 16th July, 2002 replacing cheque of Rs. 55,741/- with a demand draft. Relevant portion of the said letter is as under:

This has reference to the order passed by Hon'ble Court in the matter of Technofab Engineering Ltd. v. Nuchem Weir Limited, wherein the payment of Rs. 55,741/- towards balance compensation was made vide Cheque No. 509832 dtd 15.07.2002 for Rs. 55,741/- drawn on ICICI Bank, Cannaught Place, New Delhi. As per the Court orders, the said cheque is to be replaced by a Demand Draft of equivalent amount and with this replacements, the case will stand closed & settled in all respects.

21. The Metropolitan Magistrate vide Order dated 15th July, 2002 has recorded that the parties had settled the matter and payment of Rs. 11,63,917/- was in satisfaction of the entire claim of the complainant. This has reference to the two cheques of Rs. 5 lakhs each (total Rs. 10 lakhs) for which the complaint had been filed. This becomes clear from subsequent portion of the Order dated 15th July, 2002 wherein it has been recorded that Rs. 1,63,917/- was paid as compensation in addition to the cheque amounts. Similarly, letter dated 16th July, 2002 written by the respondent states that a bank draft of Rs. 55,741/- was enclosed as replacement for the cheque already issued and with this "the case stands closed and settled in all aspects". "The case" obviously refers to the criminal complaint filed for dishonour of two cheques of Rs. 5 lakhs.

22. In view of the above, it is not possible to accept the submission of the learned Counsel for the respondents that on payment of Rs. 11,63,917/- all pending claims of the petitioner were settled. Principles of accord and settlement are well settled. The Order passed by the Metropolitan Magistrate and the letter written by the respondent indicates that only the criminal complaint for dishonour of cheques of Rs. 10 lakhs was settled. There was no full and final settlement in respect of the entire claim of the petitioner.

23. However, I find that in some of the letters written by the petitioner, the total amount due and payable by the respondent company has been scaled down from Rs. 31,86,009.77 as mentioned in the minutes of the meeting dated 3rd May, 1999 to Rs. 30,35,876.27 (see letter dated 12th July, 2000 and 31st August, 2000). Accordingly, taking this figure as the amount due and payable by the respondent and after reducing Rs. 10,00,000/- and Rs. 3,80,805/- from the said figure, it is held that sum of Rs. 16,55,071.27/- is the debt due and payable by the respondent company to the petitioner. The respondent has failed to pay the debt due, hence the present petition for winding up is liable to be admitted. However, I defer orders for appointment of provisional liquidator and for issue of citations for a period of one month. If within this period, the respondent company makes the aforesaid payment to the petitioner along with interest @ 5% per annum from the date of filing of the petition, no further orders will be passed and the present winding up petition will be treated as disposed of. However, in case the above payment is not made within one month, the Official Liquidator attached to this Court will be appointed as provisional liquidator and citations will be directed to be issued on the next date of hearing.

24. List on 29th January, 2007.