Deutsche Homoopathie-Union ... vs R.K. Import Private Limited And ...
2006 Latest Caselaw 2085 Del

JUDGMENT

Sanjiv Khanna, J

1. Deutsche Homoopathie-Union DHU-Arzneittel GmbH & Co. KG (hereinafter referred to as the petitioner, for short) has filed two Company Petition Nos. 191/2005 and 192/2005 under Sections 433(e), (f), Section 434 read with Section 439 of the Companies Act, 1956 (hereinafter referred to as the Act, for short ) for winding up of M/s R.K. Import Private Limited and German Homoeopathic Distributors Private Limited (hereinafter referred to as R.K. Imports and German respectively and collectively as the respondent companies).

2. It is the case of the petitioner that R.K. Imports and German were appointed as sole agents for sale and distribution of homeopathic medicines of Dr. Willmar Schwabe Arzneimittel GmbH and Co.KG. The said agreement was signed and executed in June, 1998 and expired by efflux of time on 31st March, 2003.

3. In CP No. 191/2005, it is stated that R.K. Imports had placed tworders on the petitioner for purchase of homeopathic medicines in the month of October, 2003 and the supplies were made but payment as agreed upon, of EUROs 34,804.78 has not been made by R.K. Imports.

4. In CP No. 192/2005, it has been alleged that during the period 19th May, 2003 onwards, German had placed as many as eight different supply orders for purchase of homeopathic medicines. These were duly supplied but payment of EUROs 1,428,483.64 has not been made. It is further stated that a credit note for EUROs 480.20 was issued because of over delivery of goods and after reducing this amount the total outstanding amount due payable by the German to the petitioner is EUROs 1428,003.44.

5. The petitioner has stated that procedure followed by the parties was that R.K. Imports and German would place orders for purchase of homeopathic medicines. On receipt of the order, the petitioner would send a letter of confirmation along with proforma invoice to the R. K. Imports or German as the case may be. The Homeopathic medicine were released and the shipping documents were forwarded to the respondent companies through the banks of the parties. These documents were leased, only after acceptance by R.K. Imports or German and on their agreeing to pay amount on the maturity date. The bank of the respondent companies used to then inform the bank of the petitioner that the documents have been accepted by R.K. Import or German. The respondent companies were liable to make payment 75 days after the date of the invoice.

6. The two respondent companies have filed identical response/reply. The placement of orders, the supplies, invoices raised and the amount due and payable under the invoices by the respondent companies have not been disputed. Respondent companies have, however, raised counter claims against the petitioner and its associate companies. It is further claimed that vide letter dated 5th July, 2002, in terms of Clause VIII of agreement dated 24th June, 1998 under a tacit understanding the said agreement was extended for a further period of one year i.e. up to 31st March, 2004. Some other contentions were also raised and these have been noticed and dealt with in this order.

7. In support of the defense raised by the respondent companies, a number of judgments of Supreme Court and High Courts have been referred to in the written submissions. However, I feel I need not specifically refer to case law cited by both the parties, as the principles of law are well settled and have already been examined in depth and detail by the Supreme Court and this Court in similar cases. While dealing with the scope of Section 433(e) of the Act, Supreme Court in the case of Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Private Limited AIR 1971 (3) SCC 632 has observed as follows:

20. Two rules are well settled. First, if the debt is bona fide disputed and the defense is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (See London and Paris Banking Corporation 1874 LR 19 Eq 444) Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been properly was not allowed. (See Re. Brighton Club and Horfold Hotel Co. Ltd. 1865 (35) Beav 204)

21. 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, see Re. A Company. (94 SJ 369) Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantify the debt precisely See Re Tweeds Garages Ltd. (1962 Ch 406) The principles on which the court acts are first that the defense of the company is in good faith and one of substance, secondly, the defense is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defense depends.

8. The above view of the Supreme Court has been re-affirmed in Pradeshiya Industrial and Investment Corporation of U.P. v. North India PetroChemicals Limited and Anr. .

8A. A company can be ordered to be wound-up if it is unable to pay its debts as per Clause (e) to Section 433 of the Act. Section 434 by a deeming provision stipulates three situtations when a company is presumed to be unable to pay its debts. We are concerned with Section 434(1)(a) of the Act. The Clause requires issue of three weeks notice by the creditor to the company for payment and on neglect to pay or secure/compound it to the reasonable satisfaction of the creditor, the company is deemed to be unable to pay its debts. The word "neglect" used in 434(1)(a) of the Act is significant and is the foundation of the section. Neglect implies ommission to pay without reasonable cause. Ommission to pay is not by itself a reasonable cause (Yashodan Chit fund Pvt. Ltd. In re (1980) 50 Com. Cases 356). A company being a body corporate, should not neglect to pay the dues of its creditors. When notice is given and there is failure to pay, without reasonable cause, presumption operates and the deeming Clause entitles the creditor to file a petition for winding up. Insolvency of the company is presumed, once conditions of Section 434(1)(a) are satisfied. Creditor is saved from proving and establishing value of the current assets, liabilities etc. Nothing else is required to be examined. Deliberate or contumacious refusal to pay an admitted debt without reasonable cause cannot be a defense. Argument that the company opted to be sequestrate and not pay should be rejected as dishonest, repugnant to legal principles of good-faith and fairness on which the Act is based. The subsumption is that no rational and solvent person will fail to pay his creditors as per terms. Law presumes that a debtor company shall pay, if it can do so, rather than have a winding up petition against it. It is for this reason that non payment on the expiry of the period of notice is treated as presumptive proof of insolvency.

9. The question whether counter claim can be a valid shield and defense to a winding up petition, under Section 433(e) of the Act has been considered by this Court in the Jubilant Organosys Limited v. DCM Shriram Industries Limited 2004 VI AD (Delhi) 383. In this judgment, reference was made to two earlier decisions of Wimco Limited v. Sidvink Properties (P) Limited, 1996 (86) Company Cases 610 and J.N. Roy Chowdhury (Traders) P. Limited v. Jainti Enterprises, 1987 (61) Company Cases 504. It has been held that a counter claim can be a legitimate ground to deny payment of a debt due. However, counter claim should be prima facie bona fide and not one which is frivolous or mala fide. In such cases, it can not be said that the company, which is sought to be wound up on the ground of inability to pay debt, has neglected to pay inspite of receipt of statutory notice. A genuine counter claim will constitute a reasonable excuse and a cause not to make payment. Thus, even when defense by way of counter claim is raised before the Company Court, the respondent company can rebut the statutory presumption under Section 434 (1) (a) of the Act by showing prima facie that the counter claim raised is in good faith and one of substance and not mala fide. Secondly, the defense or the counter claim is likely to succeed on the point of law and thirdly prima facie proof of facts on which the counter claim is based should be adduced and filed before the Court. If these conditions are satisfied, the Company Court will go no further and will not decide the dispute itself but leave it to the civil court.

10. In this regard, I may also make reference to judgment of the Court of Appeal in Re Bayoil Statement of Affairs Seawind Tankers Corp. v. Bayoil SA , (1999) 1 All England Law Reporter 374. This decision reiterates that where a debt is undisputed but the company sought to be wound up raises a genuine and serious counter claim exceeding the amount of the petitioner's debt, a winding up petition is not maintainable. However, to succeed, the company must show that the counter claim has been raised in good faith on substantial grounds and, therefore, the petitioner, who has approached the Court cannot be regarded as a creditor. If there is no substance in the counter claim and the same has been raised just as a bogie, the winding up petition can be entertained and proceeded further.

11. Counter Claims or claims to be an effective and complete sheild must exceed the admitted claim. If a company does not dispute the debt owed, and has no genuine cross claim which might offset it, the petition should be granted. If a company asserts a substantial counter claim equal to or more than the debt, the petition should be dismissed. The counter claim or claims should be genuine and serious and should exceed the amount of the petitioner's debt.

12. In light of the well settled principles, I proceed to examine various counter claims raised by the respondent companies and whether the same are genuine and raise serious disputes. We have to also examine whether the genuine counter claims exceed the debt due. While doing so, we have to keep in mind the three factors/principles as per the decision of the Supreme Court in Madhusudan Gordhadas (supra) 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.

(A) Counter claim towards payment of commission of EUROs 219,243.45.

13. It is admitted that under the agreement dated 24th June, 1998 the respondent companies were entitled to commission on the purchases made. This agreement was between the respondent companies and Dr. Willmar Schwabe GmbH & Co. KG. It was however admitted that commission was paid by affiliates of the Dr. Willmar Schwabe GmbH & Co. KG, who were not signatory to the aforesaid agreement on purchases made by the two respondent companies. The agreement dated 24th June, 1998 had expired on 31st March, 2003 but commission was paid on the purchases made thereafter from the petitioner. Even prior to the aforesaid agreement, commission was being paid on the sales made by the petitioner in terms of the earlier agreement(s) executed between the respondent companies and Dr. Willmar Schwabe GmbH & Co. KG. I have therefore while examining this counter claim and other counter claims presumed that the petitioner is bound by the agreement and correspondence exchanged between the respondent companies and the Schwabe group as a whole.

14. The respondent companies have also relied upon e-mail dated 5th July, 2002 and Clause VIII of the agreement dated 24th June, 1998 and submitted that by implication and on tacit understanding the agreement was extended for one more year i.e. up to 31st March, 2004.

15. These are questions of fact and prima facie evidence in support has been filed. This counter claim cannot be outright rejected or regarded as a frivolous counter claim made without any basis. The respondent companies have been working as agents for the affiliate of the petitioner for the last thirty years and throughout they have been paid commission even on purchases made from the petitioner. The commission claimed is as per the agreement dated 24th June, 1998. To this extent, therefore, I feel the respondents have a genuine and a substantial counter claim for EUROs 219,243.45.

(B) Repurchase of stock

16. In this regard the respondent company has relied upon Clause IX of the agreement dated 24th June, 1998, which reads as under:

On the termination of this agreement, regardless of reasons, GERMAN shall immediately stop using the name SCHWABE in any connection whatsoever. In case of such termination it is, however, understood that SCHWABE is prepared to re-purchase stocks of the SCHWABE preparations delivered under this Agreement, in good and saleable condition, limited to a three-months requirement, besides all other goods which are in transit from SCHWABE to GERMAN at the time of termination of this Agreement, at landed cost price. Other stocks must be destroyed by GERMAN at his costs.

17. The counter claim made in this regard is for EUROs 350,017. The respondent companies have referred to letter dated 5th November, 2004 written by Dr. Amitabh Sen, Advocate retained by the said companies. In the said letter, Dr. Amitabh Sen, has relied on Clause IX above and has stated that the petitioner was liable to repurchase the entire stocks of Schwabe preparations including goods in transit. It was further stated that if repurchase was not made within 14 days, the respondent companies will assume that the petitioner was not interested in removing the stocks and disposal of the same. However, details of the stocks etc. were not mentioned in this letter. These details were supplied by another letter dated 8th December, 2004. While giving details, the respondent companies merely mentioned the closing stock available with them as on 31st October, 2004.

18. The stand of the petitioner is that Clause IX will not apply as the agreement dated 24th June, 1998 had expired by efflux of time and was not terminated and, therefore, the said Clause has no application. The respondent companies, however, dispute the said contention and the ground that the agreement was extended up to 31st March, 2004 and have referred to letter dated 9th September, 2002 and wherein, the petitioner has specifically stated "we hereby terminate the agreement".

19. It is the case of the respondent companies themselves that the agreement was extended up to 31st March, 2004. For examining this counter claim I shall presume that the stand of the respondent companies is correct that Clause IX of the agreement dated 24th June, 1998 applies on termination and also on expiry by efflux of time and by tacit understanding the agreement was extended up to 31st March, 2004. I shall also presume that the agreement was/is binding and applicable to the petitioner. The first letter written by the respondent companies for repurchase was on 24th November, 2004 i.e. after lapse of nearly eight months. Moreover, Clause IX as quoted above specifically provides that repurchase of stock would be limited to three months requirement and the other balance stock would have to be destroyed by the respondent companies at their own cost. Neither in the letters nor in the pleadings the respondent companies have pointed out or stated "the three-months requirement" as mentioned in Clause IX nor was any letter written within the three month period. The details furnished and mentioned in the letter dated 8th December, 2004 only refers to the "closing stock available" with the respondent companies and not to the three-months requirement. Other stocks had to be destroyed by the respondent companies at their own cost. In the absence of any prima facie evidence and material produced by the respondent companies, I cannot accept this counter claim raised by the respondent companies as genuine and substantial. No prima facie material and evidence in support has been submitted. Even otherwise the respondent companies in their letter dated 5th November, 2004 written by their counsel had clearly stated that they shall dispose of or destroy the stock at the cost and expense of the petitioner. No details in this regard have been furnished and it has not been stated whether stock has been sold, partly sold, destroyed or partly destroyed.

20. I, therefore, feel that the counter claim in this regard cannot be regarded as genuine, bona fide and of substantial nature.

(C) Counter claim on account of expenses incurred on labelling

21. The respondents companies have made counter claim of EUROs 260,000 for labelling of products imported from the petitioner and other affiliate companies. It is admitted that under agreement no payment is due and payable to the respondent companies on account of labelling. However, the respondent companies have placed reliance on letters/e-mails exchanged between the parties. In the letter/e-mail dated 26th June, 2001, the respondent companies had raised claim for fixing labels on the wrappers on per piece basis. In response, "the petitioner"/Schwabe agreed to pay compensation of EURO 60,000 for the year 2002 vide their e-mail dated 16th January, 2003. The respondent companies felt that this was rather low and asked for payment of EUROs 90,000 per annum from the year 2000 awards, but as a gesture of good-will and as a measure of compromise agreed to accept EUROs 75,000 per annum for the calender years 2001 and 2002. "The petitioner"/Schwabe, however, replied back vide e-mail dated 20th January, 2003 that they cannot accept and include year 2001 for reimbursement purposes and agreed to make lump sum payment of EUROs 75,000 for the year 2002. Admittedly, this compensation for the said amount for the year 2002 has been made and accepted. Similarly, for the year 2003, the parties mutually agreed to compensation of EUROs 75,000 being paid, though initially the petitioner had some reservation about the said amount. The additional claim now made for 2002 and 2003 is therefore without substance and not bonafide.

22. The claim for labelling relating to year 2000 is clearly barred by limitation and the claim for labelling for the year 2004, is an after thought. In the letter dated 5th November, 2004 the respondent companies had only claimed for additional cost of labelling for the years 2000-2001 and no claim was made for the year 2004.

23. However, with regard to claim for the year 2001, the petitioner in the e-mail dated 20th January, 2003 has admitted that some payment was agreed to be made but nothing was fully finalised. In these circumstances, I hold that the claim for labelling for the year 2001 @ EUROs 75,000 appears to be a genuine counter claim, which requires investigation and trial. However, there is no justification for the balance amount of the counter claim and the same cannot be regarded as genuine and substantial.

(D) Counter claim of EUROs 9,32,500 towards compensation as a result of red alert issued by WHO on eye-drops supplied by the petitioner:

24. The break-up of this counter-claim has been given in letter dated 12th December, 2002 and reads as under:

  Srl.No.           Brief Description of the efforts                                    Amount claimed (EURO) 

1.                 Compensation for loss of our reputation/ goodwill
                   injury to the business and personal deprivation, 
                   mental agony, harassment, stress, & strain etc 
                   in handling sub-standard CMS.                                        500,000

1.1                Our out of pocket expenses, like expenses
                   incurred for numerous visits to various
                   authorities at Bombay while handling sub-standard CMS.               27500

2                  New CMS

2.1                Additional Air freight we have incurred on the test consignment
 
2.2                Demurrage charges at Mumbai Airport for more than
                   two months pending receipt the WHO Test Report on 
                   the consignment from Germany.                                      (Rs.48900,00)

2.3                Storage charges for more than two months at the
                   Custom Warehouse pending receipt of test report 
                   from H.P.L. and thereafter formal approval from the 
                   authorities for the release of the consignment.                    (Rs.33180.00)

2.4                Customs duty of this test consignment                              (Rs.20845.00)

2.5                Cost of the samples sent for testing these samples were 
                   drawn by Drug Authorities for testing about 90 to 100 bottles 
                   of eight batches about 750/800 bottles.                            (Rs.51,000.00)
 
                                                         Total                         (2.1 to 2.5)

                                                                                         10,000,--
2.6               Out of pocket expenses actually incurred at various 
                  stages for (i) taking out the samples at the airport 
                  (ii) transmitting to the authorities for test, (iii) tests 
                  at the laboratory stage and (iv) for obtaining clearance 
                  of the samples at the various stages.(lump-sum)                        20,000,--

2.7               Expenses at various levels for getting the necessary approvals...      25,000,--

2.8               Our fees for getting this New CMS job done for Schwabe......          100,000,--

3                The amount of Expenses & Losses for keeping the selling
                 prices very much lower than our actual cost at the time
                 of re-introduction of the New CMS                                       250,000,--


                                                             TOTAL                       932,500,--

 

25. WHO, Geneva had issued a warning in respect of eye-drops manufactured by the petitioner and 10% of the samples on testing did not meet the sterility criteria. Ban was imposed by the Indian authorities.
 

26. It is the case of the respondent companies that that their business reputation had suffered and stupendous effort had to be undertaken to get clearances from the concerned authorities and for reintroduction of the product. It is also claimed that questions were asked in the Parliament about the quality of the product and the entire spade work including getting necessary approval after testing from the authorities and reintroduction of the product was a result of time, effort and money devoted and spent by the respondent-companies.

27. From the break-up of the claim given above, it is apparent that the respondent-companies have claimed compensation, on account of reputation, goodwill, harassment, etc, of EUROs 5,00,000, which is equal to about Rs. 3 crores. Out of pocket expenses for visit to authorities etc. Of EUROs 27500 has been separately claimed. In addition, Rs. 1.40 crores (EUROs 2,50,000) is also claimed on account of expenses and losses as it is alleged that the selling price was much lower than actual cost on reintroduction of the product. Fee of Rs. 57 lacs (approx) (EUROs I,00,000) has been claimed for getting "new CMS job done for the petitioner" and EUROs 55000 have been claimed under different heads for out- of-pocket expenses, for getting tests done and obtaining approvals. On the face of it the claims are inflated and excessive. No documents justifying the quantum claimed or in support thereof have been filed.

28. The claim for compensation of Rs. 3 crores on the face of it is exorbitant and without any foundation. The respondent-companies have not pointed out any reduction in profits or details of alleged loss incurred by them. Besides, the claim is overlapping as separate amounts have been claimed for expenses incurred for getting necessary approvals and fee of EUROs 100000 (Rs. 56Lacs approx.) for getting the work done.

29. The basis on which these claims have been quantified has not been explained and is based on ipse dixit of the respondent companies. Keeping in mind the amount claimed, some justification and basis should have been disclosed. The said claims do not qualify and cannot be regarded as genuine counter claims of substance. Under the Contract Act normally actual damges suffered can be awarded. There are no allegations, justification and material to support these claims.

30. Similarly for claim of EUROs 250000/- no material to show difference between actual cost and selling price has been placed on record. Documentary evidence to prima facie show losses should have been placed on record.

31. I may however mention here that some of the eye-drops imported by the respondent-companies from "the petitioner"/Schwabe in the year 1999 had to be destroyed because they were found to be sub-standard by the Indian authorities. This is clear from the certificate dated 22nd June, 2000 issued by the Deputy Drug Controller (India), Mumbai. The said supplies relate to shipping bill No. 100201894 dated 30th December, 1999. Moreover, efforts made by the respondent companies have not been denied.

32. The respondent companies except mentioning the figures have not placed any material to justify the quantum claimed. However taking a liberal view rest of the counter claim of EUROs 182500 is treated as a defense to the debt claimed. This includes EUROs 100000 claimed by the respondent companies towards fee for getting CMS done. The figure and claim of EUROs 100000 is also relevant and kept in mind for deciding claims for damages under different heads.

(E) REIMBURSEMENT FOR SUPPLIES MADE IN 2003-04

33. It is claimed that the respondent-companies are entitled to 50% reduction in the purchase price as the supplies were manufactured in Czechoslovakia whereas in the shipping documents as well as on the invoices it was stated that the medicines were "made in Germany". Counter-claim of EUROs 9,75,000 has been made by the respondent-companies in this regard.

34. The petitioner has not disputed that some of the medicines supplied in the year 2002-03 were manufactured in Czechoslovakia. However, it is stated that the goods were not misdescribed as under the provisions of the German law, the said goods were "made in Germany".

35. The claim made by the respondent-companies is for mishandling or for defective supplies.Along with the reply the respondent-companies have enclosed therewith only one letter dated 9th September, 2004 which makes reference to an earlier letter dated 20th April, 2004. It is apparent from these two letters that no claim in this regard was made in 2003 and/or at the time when they accepted the said goods and even when payments were made. Even the letter dated 20th April, 2004 has not been placed on record by the respondent-companies. In letter dated 9th September, 2004 no specific claim in this regard has been made.

36. The respondent-companies have filed a chart giving details of the supplies, the subject matter of the counter-claim on the ground of "misdescription". The chart filed shows that the goods were supplied between april 2002-october 2003 and do not relate to the period 2003-2004.

37. Section 41 of the sale of goods act, 1930, entitles a buyer to examine the goods delivered, which he did not examine previously. Section 42 of the act provides that if within reasonable time the buyer does not intimate the seller that he has rejected the goods (or that they they do not meet the description/quality etc.), then he is deemed to have accepted the goods.

38. Section 13(2) further provides that once the buyer has accepted the goods (though he may have a right to reject them) even in breach of any condition to be fulfillled by the seller then such a breach is treated as one of warranty. Thus, buyer shall nomore be entitled to reject the goods in view of Section 12(3) though he may claim damages according to the methods under Section 59, one of them being setting up against the seller the breach of warranty in diminution or extinction of price.

39. In case of svenska handelsbanken v. Indian charge chrome the supreme court on the facts of the case held:

84. It will be noticed that in the present case prima facie the provision for capacity of the power plant being of 108 MW was a condition. Therefore, the plaintiff could have repudiated the contract as provided in Section 12(2) of the Sale of Goods Act or treated as a warranty by waiving the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated.

85. In the present case the plaintiff has not repudiated the contract. In fact it is working with the power plant and, therefore, the breach of condition has been treated by the plaintiff as a breach of warranty and in view of Section 12(3) of the Sale of Goods Act, the breach of warranty gives a right to claim for damages but not to a right to reject the goods and treat the contract as repudiated. Even the prayer in the plaint is for diminution of the price of the power plant and the relief is based on Section 59 of the Sale of Goods Act.

40. The Respondent Companies claim that the Petitioner supplied defective medicines since from its packing it claimed to have been manufactured in Germany though the same had been manufactured and packed in Czechoslovakia. However the Respondent companies did not raise any dispute with respect to the quantity or quality of the medicines so supplied, in spite of the alleged breach of condition by the Petitioner, (viz. medicines manufactured in Czechoslovakia and not in Germany) as a result of which the right to reject the goods stands waived. However, in view of the above provisions the Respondent Companies were entitled to set up a claim under Section 59 against the seller for breach of warranty by claiming diminution or extinction of price. This was not done and full payments were made. This belated claim therefore deserves to be rejected as not substantial and bona fide.

41. This claim is an after-thought as first letter raising the counter-claim in this regard was made after substantive delay in September, 2004 and that too once disputes and differences between the parties had arisen. The respondent-companies have also not placed on record any material evidence to show that the medicines supplied were sold at a lower price and/or any loss of profit was caused to them.

(F) Damages/compensation for breach of contract :

42. Under this heading I shall be examining the following counter claims made by the respondent companies:

(i)Illegal termination/breach of contract - Euro 3,00,000.

(ii) Breach of confidentiality Clause - Euro 5,00,000.

(iii) Bad faith on behalf of Schwabe in deliberately postponing execution of fresh agreement on one pretext or the other till the Indian arm of the petitioner got approval for trading activities in India. EUROs -5,00,000.

(iv) Bad faith on behalf of the petitioner in setting up a company in India and setting up competitive business, thus eliminating and causing loss to the respondent-company to the tune of EUROs 1,050,000.

43. The above counter-claims are equal to about Rs. 12 crores. On the face of it, these are exorbitant and extortionate claims. The respondent-companies were required to prima facie satisfy this Court that there is some material and basis for making these claims and the quantum claimed is based on sound and intelligible grounds. What can be awarded as damages is the actual losses suffered and not remote or unforeseen damages. Further the claimant has to establish breach of a contract by the other party. No doubt different agreements were entered into from time to time for 30 years but the same were for fixed period of time. The rights of the parties were governed by the agreements. Last Agreement between the Schwabe Group and the respondent companies was executed on 24th June, 1988 for a limited term till 31st March, 2003. The respondent-companies were aware of the fixed term of the Agreement. The contract thereafter, as per the respondent-companies, under a tacit understanding was extended till 31st March, 2004. It is not the case of the respondent-companies that the orders that were placed on Schwabe Group were not honoured and supplies were not made during the term of the Agreement till 31st March, 2003 or even thereafter till 31st March, 2004. On the other hand, it is admitted case of the respondent-companies that consideration/sale price for the supplies made by the Schwabe Group were not paid within the stipulated period. The respondent-companies have not prayed for specific performance of any contract or even argued that the petitioner was under an obligation to execute any further agreement.

44. As far as incorporation of company-Dr. Wilmer Schwabe India Pvt. Ltd is concerned, the shareholders/Directors of the respondent-companies were himself a shareholders of the said company, initially to the extent of 15%. Subsequently, they did not subscribe to the rights issue and their shareholding has come down to 6%. The said company was incorporated with a knowledge and tacit consent/ understanding of the respondent-companies. The respondent-companies cannot now after indirectly participating in the incorporation, cry and shed tears. The respondent-companies were also aware that Dr.Willmer Schwabe India Pvt. Ltd. had been incorporated for carrying on business of manufacturing, distributing, selling, buying, importing homeopathic and herbal medicines.

45. It is stated that the Directors of the respondent-companies have made investments and purchased shares in Dr.Willmer Dr.Schwabe India Pvt. Ltd. of about Rs. 3 crores. It is stated that there was mutual understanding and agreement between Schwabe group and the shareholders of respondent-companies pursuant to which the aforesaid investment was made in the said joint venture. The affairs of Dr. Willmer Schwabe India Pvt. Ltd are not subject matter of the present petition. In the reply, respondent companies have stated that Mr. Kamlesh Gupta and his family members reserve their right to initiate appropriate proceedings under Section 397, 398 and 402 of the Act. Inter-se disputes between the shareholders of the respondent-companies and a third company i.e. Dr.Willmer Schwabe India Pvt Ltd cannot be regarded as a counter claim. These are independent and separate matters between the shareholders of the respondent-company and third parties. Respondent-companies cannot raise these disputes on the pretext of counter claims.

46. It is quite apparent that the respondent-companies have made up these counter claims and quantified them only to somehow exceed the value of the medicines supplied by the petitioner. There is otherwise no basis and substance in the claims and the quantification made. Quantification has not been justified and supported on basis of any data and figures. Cause of action occurs only if actual damages are suffered. The amount of damages can never exceed the actual direct loss suffered or which is likely to be suffered. No case for claiming special damages has been specifically pleaded with documents and allegations in support. I am, therefore, inclined to reject and hold that the counter claims for damages/compensation are without substance and not bonafide. The respondent companies have failed to substantiate that these counter claims have been made in good-faith, are likely to succeed on point of law and have also failed to adduce prima facie proof of the facts on which it is based. However, I have while dealing with counter claim of eye drops allowed set off of EUROs 1,00,000 claimed as fee. No separate amount is set off from these claims.

G. Other Counter Claims

47. With regard to debit note of Euro 30,463.01 dated 7.2.2003 no facts have been pleaded and no documents or materials in support have been filed. Admittedly, the debit note was dated 7.2.2003 and was accepted by the respondent companies at the relevant time. Counter claim to this extent is not genuine. Similarly with regard to alleged frozen commission of EUROs 52,815.37 no details have been furnished. The period and the consignment/purchases for which this alleged commission relates has also not been stated. This claim therefore cannot be regarded as bonafide.

48. The respondent-companies in the written submissions have raised objection to the affidavit filed in support of the Petition. Photocopy of the judgment passed by A.K. Sikri, J. In C.P. No. 374/2002 titled Medi Trade Medical Trading GmbH v. Medisphere Marketing Ltd. has been relied upon. The said plea is liable to be rejected as no such objection has been taken in the pleadings. A.K. Sikri, J. in his order has held that a petition for winding up can be filed by an attorney but the supporting affidavit should be of a person mentioned under Rule 21 of the Companies (Court ) Rules, 1959 or exemption/permission from Court/Registrar for filing an affidavit by another person should be obtained. But it has been held that failure to comply with Rule 21 is an irregularity which can be cured.

49. The respondent-companies have not taken this objection in the reply. They cannot be allowed to take this technical plea in the written submissions. If this plea had been taken in the pleadings the petitioner could have taken appropriate remedial action. In D.M. Deshpande v. Janardhan Kashinath Kadam it has been observed :

9.Learned counsel for the appellants has relied upon three decisions in support of his contention that a vague plea does not justify an issue being framed. In this connection, a reference was made to Ram Sarup Gupta v. Bishun Narain Inter College where the Court has held that all necessary and material facts should be pleaded by the party in support of the case set up by it. In the absence of any pleading, evidence if any produced by the parties cannot be considered. The object and purpose of a pleading is to enable the adversary party to know the case of the opponent. In order to have a fair trial, it is imperative that the parties should state the essential material facts so that the other party may not be taken by surprise. The Court has, however, cautioned against a pedantic approach to the problem and has directed that the court must ascertain the substance of the pleading and not the form, in order to determine the case.

50. Moreover, I find that power of attorney in favor of Mr. Vikram Grover who has signed and verified the affidavit in support has been enclosed with the Petition.

51. In view of the findings given above, the following counter claims raised by the respondents are held to be substantial and "genuine":

 (a) Commission payment EUROs                 2,19,243.45 
(b) Labelling of EUROs                                     75,000
(c)Expenditure on CMS
eye-drops, fee and  damages EUROs               1,82,000
 --------------------------------------------------------------------
Total EUROs                                              476243.45
 

52. The other claims as already discussed above are not genuine counter claims. The debt due and payable by German is EUROs 14,28,483.64 and the debt due and payable by R.K. Traders is EUROs 34,804.78. The debt due and payable by R.K. Traders is less than the total value of the counter claims found to be of substance and which require investigation and trial. Accordingly winding up petition against R.K. Traders C.P. No. 191/2005 is liable to be dismissed. However for the same reason and after adjustment of EUROs 34,804.78, the balance, "genuine" counter claims of EUROs 441438.67 is less than EUROs 1428003.44 which is due and payable by German Homoeopathic Distributors Private Ltd. Winding up petition 192/2005 against the said company is therefore admitted.

53. However, I defer orders for publication of citations and appointment of provisional liquidator for a period of two months to enable the said respondent-company to pay EUROs 987044.97 (1428003.44 less 441438.67) along with interest @5% per annum from the date of filing of the Petition till payment. In case the aforesaid payment is not made, orders for publication of citations and provisional liquidator will be passed.