Delhi High Court
German Homoepathic Distributors ... vs Deutsche Homeopathic-Union Dhu ... on 31 July, 2009
Author: Vikramajit Sen
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ Co. App. 3/2007
# GERMAN HOMOEPATHIC DISTRIBUTORS
PRIVATE LIMITED ..... Appellant
Through: Mr. Rajiv Sawhney, Sr.
Adv. with Mr. Sanjeev
Sachdeva & Mr. Preet
Pal Singh, Advs.
versus
$ DEUTSCHE HOMEOPATHIC-UNION DHU
^ ARZNEIMITTEL GmBH & Co. KG .....Respondent
Through: Mr.Sanjay Jain, Sr.
Adv. with Mr. Kamal
Sharma & Mr. Amol
Dixit, Advs.
Date of Hearing :May 11, 2009
% Date of Decision : July 31, 2009
CORAM:
* HON'BLE MR. JUSTICE VIKRAMAJIT SEN
HON'BLE MR. JUSTICE RAJIV SHAKDHER
1. Whether reporters of local papers may be
allowed to see the Judgment? Yes
2. To be referred to the Reporter or not? Yes
3. Whether the Judgment should be reported
in the Digest? Yes
VIKRAMAJIT SEN, J.
1. The present Company Appeal is directed against the
impugned Judgment and Order of the learned Company Judge
dated 20.11.2006 admitting the winding up petition of Deutshe
Homeopathic Union DHU Arzneimittel GmbH & Co. Kg, the
Respondent in the present Appeal. Publication of citations and
appointment of provisional liquidator had been deferred for a
period of two months so as to enable the said Respondent
company to pay € 9,87,044.97 along with interest at the rate of
five per cent per annum from the date of filing of the
Petition till payment. The amount of said € 9,87,044.97 has
been reached by the learned Company Judge by setting-off
€ 4,41,438.67, the counterclaim that was held to be genuine,
from € 14,28,003.44 which is the total outstanding amount due
on the German Homeopathic Distributors Private Limited
(hereinafter referred as Appellants) on account of eight
different orders for purchase of homeopathic medicines, which
were undisputedly duly supplied.
2. The Appellant is an Indian Company which was the sole
selling agent for Dr. Willmar Schwabe Gmbh & Co. KG in India
of which the Respondent is an affiliate. The last Contract dated
24.6.1998 was agreed between the Appellant and Dr. Willmar
Schwabe Gmbh & Co. KG to be current till 31.03.2003,
automatically extendable from year to year. Either party had
the right to terminate it by six months advance notice of initial
or any extended period of the Agreement. The said Agreement
stood prolonged for one year, that is, upto 31.03.2004. It was
from May 19, 2003 to October 6,2003 that the Appellant
placed eight orders for purchase of Homoeopathic medicines
in respect of which the Respondent has raised Invoices
bearing numbers 10560, 11970, 09530, 17110, 17140, 17210,
19650 and 19860.
3. The Appellant has not disputed that supplies were made
against the Invoices raised and amount due and payable under
the Invoices raised by the Respondent herein. However, they
have sought to raise counterclaims against the Respondents,
which are pending adjudication in Civil Cases filed by them. It
is contended that these are substantial, bona fide and are in
excess of the claims of the Respondent.
4. The Appellant has raised its counterclaims against the
Respondent on several grounds. Firstly, the Appellant claims
an amount of € 2,19,243.45 against the commission payable
under the Agreement dated 24.06.1998. The learned Company
Judge has, in respect to this claim held that prima facie
evidence in support has been filed by the Appellant. Secondly,
an amount of € 9,32,500.00 has been claimed against the
loss/damages and the expenses incurred in removing the
adverse impression of quality of CMS Eye Drops and obtaining
approval including arranging, airfreight, demurrage, storage
charges, custom duty, testing charges etc. for the new CMS
Eye Drops from the Authorities. The learned Company Judge
has, on a prima facie view, held the claim to be inflated and
excessive as no documents have been filed, justifying or
supporting the quantum claimed. He has, however, treated an
amount of € 1,82,500 as a defence to the debt claimed.
5. Thirdly, an amount of € 2,60,037 has been claimed
against alleged defective packaging and cost of additional
labeling incurred by the Appellant. It is the case of the
Appellant that the packaging of the medicines supplied by the
Respondent neither conformed to the requirements of
INCOTEMS nor the mandatory requirements of the Standards
of Weights & Measures (Packaged Commodities) Rules and
Foreign Trade (Development & Regulation) Act. To conform
with the requirements of the law, the Appellant was required
to affix additional labels on the bottles and the outer
packaging, for which the Appellant had to incur heavy costs.
The learned Company Judge, while adjudicating on this claim,
had perforce to refer to the correspondence made between the
parties and not the Agreement because the learned Judge held
the same to be inconsequential for this claim as the Agreement
dated 24th June, 1998 stood expired by the efflux of time. It
was further held that the parties had settled the claim at an
amount of € 75,000 for the year 2002 and € 65,000/- for the
year 2003. The claim for the year 2000 has been held to be
time barred and that of the year 2004 to be an afterthought
and not bona fide. The learned Judge only held claim of
€ 75,000/- for the year 2001 to be a genuine counterclaim.
Fourthly, an amount of € 3,50,717.55 has been claimed
towards the stock which, according to them, was bound to be
purchased back by the Respondent as per Clause IX of the
Agreement dated 24.06.1998 limited to three months
requirement. The learned Company Judge has held that the
first letter written by the Respondent company for repurchase
was on 24th November, 2004, that is, after lapse of nearly eight
months. Further, he held that neither in the letters nor in the
pleadings the Respondent company has pointed out or stated
"the three-months requirement" nor was any letter written
within the three months period. Thus, the claim was ex facie
not held to be valid and substantial. Fifthly, counterclaim of
€ 9,75,000 has been raised as a reimbursement of loss suffered
by the Appellant on account of misdescription on the
medicines supplied between the years 2003 and 2004 which
wrongly indicated its manufacturing to be "made in Germany"
though the same were, in fact, manufactured in
Czechoslovakia. The learned Company Judge has declined to
consider the claim applying the doctrine of caveat emptor
(buyer beware) and being a belated claim. Sixthly, € 5,00,000
have been counterclaimed on account of breach of the
Confidentiality Clause by the Appellant for supplies of
medicines in the year 2003 to its own associate, Dr. Willmar
Schwabe India (P) Ltd. at a discounted price. Seventhly,
€ 4,50,000/- has been claimed towards breach of Confidential
Clause. Eighthly, claim has been made towards Bad Faith on
account of starting a new company. These three claims were
dealt cumulatively by the learned Company Judge and brushed
aside simultaneously. It has been held by the learned Judge
that these counterclaims are exorbitant and extortionate and
that the Respondent before him failed to satisfy the Court that
there is some material and basis for making these claims and
the quantum claimed is based on sound and intelligible
grounds. Also on incorporation of competitive company by the
Respondent, the learned Judge remarked that the Appellant
before him was itself shareholder of the said company which
was, in fact, a joint venture. Thus, the Appellant had given its
tacit consent in its incorporation and cannot now after
indirectly participating in its incorporation cry and shed tears.
Besides, the claims made towards the investments made by the
Appellant towards the Joint Venture were held to be mutually
exclusive of the present dispute and not maintainable under
the guise of counterclaim in that petition. Ninthly, claim of
€ 30,464.61 with regard to Debit Note dated 7.2.2003 has
been raised and Tenthly € 52,815.37 have been claimed
towards frozen commission. Both these counterclaims were
refused to be looked into by the learned Company Judge on the
ground that no documents or materials in support were filed
by the Appellant. Evaluating all the counterclaims, the learned
Judge held a total of € 4,76,243.45 to be a substantial
counterclaim and rest of the counterclaim to be a phony claim.
6. The Appellant has also raised Objections to the Affidavit
filed in support of the Petition on the premise that the same
was not signed by the person mentioned under Rule 21 of the
Companies (Court) Rules, 1959. The learned Company Judge
has disregarded the same, holding it to be an irregularity
which can be cured.
7. It has been vehemently argued by Mr. Sawhney, learned
Senior Counsel for the Appellant that the learned Company
Judge has exceeded the jurisdiction vested on him in a winding
up petition under Sections 433(e), (f), Sections 434 read with
Section 439 of the Companies Act, 1956 (hereinafter referred to
as the „Act‟) and misapplied jural discretion by ascertaining the
amount of the counterclaim of the Appellant and holding that
evidence has not been placed on record for certain
counterclaims. In a Company Petition the scope of enquiry is
limited to prima facie determining whether the counterclaim
raised is in good faith and is one of substance and not mala fide.
It has been the pivotal contention of the Appellant‟s counsel that
the winding up petition is not a legitimate or legally permissible
method of seeking to enforce payment of a debt or an
alternative to the ordinary mode of debt realization. It is argued
that the allegations of both the adversaries require appreciation
of evidence and cannot be decided in a company petition for
winding up.
8. Before running the marathon of analyzing each and every
counterclaim like the learned Company Judge has diligently
done, we would analyze the scope of enquiry required to be
made by a Company Court in case of a winding up Petition filed
under Section 433 (e) & 434 on the ground that the Company is
unable to pay its debts; and where a counterclaim or cross-claim
is set forth as a defence by the Respondent. The Supreme Court,
in the celebrated case of Madhusudan Gordhandas and Co. -vs-
Madhu Woollen Industries P. Ltd., [1972] 42 Comp Cases 125:
AIR 1971 SC 2600: (1971) 3 SCC 632, has laid down the
following principle:-
20. Two rules are well settled. First, if the debt is bona
fide disputed and the defence 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) 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
Norfolk Hotel Co. Ltd., (1865) 35 Beav. 204).
21. Where the debt is undisputed the court will not act
upon a defence 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 defence of the company is in good
faith and one of substance, secondly, the defence is
likely to succeed in point of law and thirdly the
company adduces prima facie proof of the facts on
which the defence depends.
9. In Amalgamated Commercial Traders (P) Ltd. -vs- A.C.K.
Krishnaswami, 1965 (XXXV) Comp Cas 456 the Supreme Court
has enunciated the law in these words:-
13. It is well-settled that a winding up petition is not a
legitimate means of seeking to enforce payment of the
debt which is bona fide disputed by the Company. A
petition presented ostensibly for a winding up order
but really to exercise pressure will be dismissed, and
under circumstances may be stigmatized as a
scandalous abuse of the process of the Court. At
one time petition founded on disputed debt were
directed to stand over till the debt was established by
action. If, however, there was no reason to believe that
the debt, if established, would not be paid, the petition
was dismissed. The modern practice has been to
dismiss such petitions. But, of course, if the debt is not
disputed on some substantial grounds, the Court may
decide it on the petition and make the order.
In the instant case, I find that the facts are disputed
and there is case and counter case and in that view of
the matter, in my opinion, in view of the ratio laid down
by the Supreme Court in Amalgamated Commercial
Traders (supra) this petition for winding up is not
sustainable and it must be dismissed.
10. The law of winding up has been succinctly and elaborately
discussed by the Division Bench of the Gujarat High Court in
Tata Iron and Steel Co. -vs- Micro Forge (India) Ltd., [2001] 104
Comp Cas 533 (Guj): (2000)2GLR1594 where our learned
Brothers have articulately covered all contours and aspects of
this subject. It was opined that a claim to an order of winding up
is not a matter of right, but it is the discretion of the court to
grant or to reject. Secondly, if a disputed debt has been
disclosed, it should be adjudicated by a competent civil court.
Thirdly, a Petition for winding up with a view to enforcing
payment of a disputed debt is an abuse of the process of the
court and should be dismissed with costs. After applying Bayoil
S.A, [1999] 1 All ER 374, the Division Bench, noting the
existence of a bona fide dispute of debt, as also the existence of
a plausible Counterclaim, dismissed the winding up petition.
11. We are also reminded of In re L.H.F. Wools Ltd., [1969] 3
W.L.R. 100 : [1969] 39 Comp. Cas. 934 where the Three-Judge
Bench of the Court of Appeals was confronted with a situation
similar to what obtains before us. A Petition for winding up had
been admitted since the Petitioner had obtained a Decree
against the Debtor Company which had filed a Counterclaim in
Belgium. This Counterclaim would not have been entertained in
England but was certainly sustainable in Belgium. The Court of
Appeals opined that "the proper order to make is that the
petition should stand over generally with liberty to either side to
restore, until we can see what progress is made with the action
in Belgium : and I would so hold".
12. In winding up proceedings it is necessary to keep the
following principles in perspective --(i) If there is a bona fide
dispute and the defence is a substantial one, the court will not
wind-up the company; (ii) Where the debt is undisputed the
Court will not act upon a defence that the company has the
ability to pay the debt but the company chooses not to pay it;
(iii) Where the defence of the company is in good faith and one
of substance, and the defence is likely to succeed in point of
law, and the company adduces prima facie proof of the facts on
which the defence depends, the petition should be rejected;
(iv) The Court may consider the wishes of creditors so long as
these appear to be justified; (v) The machinery of winding up
should not be allowed to be utilised merely as a means of
realising its debts. [For the above propositions see Pradeshiya
Industrial and Investment Corporation of Uttar Pradesh -vs-
North India Petro-Chemical Ltd., (1994) 2 Comp LJ 50 (SC) in
which the observation in Amalgamated Commercial Traders
(P)Ltd. -vs- Krishnaswami, [1965] 35 Comp. Cas 456(SC) and
Madhusudan Gordhandas -vs- Madhu Woollen Industries (P)
Ltd., [1972] 42 Comp. Cas.125 (SC) have been paraphrased];
(vi) If the stance of the adversaries hangs in balance it is always
open to the Company Court to order the Respondent Company
to deposit the disputed amount. This amount may be retained by
the Court and be held to the credit of the suit, if any. [see
Ambala Bus Syndicate Pvt. Ltd. -vs- Bala Finance Pvt. Ltd., 1983
(2) SCC 322 and Civil Appeal No. 720 of 1999 arising out of SLP
(C) No. 14096 of 1998 - M/s.Nishal Enterprises -vs- Apte
Amalgamations Ltd., decided on February 5, 1999];
(vii)Generally speaking, an admission of debt should be
available and/or the defence that has been adopted should
appear to the Court not to be dishonest and/or a moonshine, for
proceedings to continue. If there is insufficient material in
favour of the petitioners, such disputes can be properly
adjudicated in a regular civil suit. It is extremely helpful to draw
upon the analogy of a summary suit under Order XXXVII of the
Code of Civil Procedure. If the Company Court reaches the
conclusion that, had it been exercising ordinary original civil
jurisdiction it would have granted unconditional leave to defend,
it must dismiss the winding up petition.
13. As regards the prima facie proof of a bona fide character
of a counterclaim, the burden lies on the party who sets-up the
counterclaim, which burden can be discharged by producing
sufficient material in support. The adequacy of the material
cannot be objectively defined but it should convince the learned
Company Judge that the counterclaim requires to be
adjudicated in detail by a Civil Court.
14. Applying these findings of law to the facts of the present
case, we cannot but reach to the conclusion that the learned
Company Judge has travelled beyond the frontiers of jurisdiction
in winding up petitions by going into the counterclaim in minute
detail. The learned Company Judge has allowed the first
counterclaim of the Appellant for the commission payable in
toto. As regards the second counterclaim regarding the supply
of defective CMS eye-drops which had to be destroyed, the
Appellant had filed the correspondence made between the
parties in December, 2002, much before the filing of winding up
petition as Annexure R-9 along with the photographs of
medicines being rundown by a bulldozer and a Certificate
granted by the Government of India signed by Deputy Drugs
Controller, certifying that the medicines were, in fact,
destroyed. The documents are adequate to prima facie raise a
valid and substantial counterclaim. The learned Company Judge
could not, in the summary manner, which intrinsically governs
and modulates winding up proceedings, have come to the
conclusion that the claims were baseless and excessive.
Assuming that the counterclaim was "excessive", it was not
expected of the Company Judge to quantify the amount due
since that is the province of the civil court. Similarly, as regards
the third claim regarding repackaging of the medicines, the
learned Company Judge erred in admitting the claim of € 75,000
and declining the rest despite the Letters of Demand filed by
Appellant as Annexure R-12. As regards the fourth counterclaim
regarding re-purchase of medicines after the termination of
contract, the learned Single Judge ought not to have concluded
that the Appellant failed to request the Respondent to
repurchase the medicines within the stipulated three months
period. Since the rival claims required adjudication, the
Company Judge ought to have stayed, if not rejected the
proceedings pending before him. Another counterclaim
regarding the medicines, which were not manufactured by
Doctor William Schwabe in Germany but by another company in
Czech Republic, was raised which was declined by the learned
Company Judge. The merits of this counterclaim are also subject
matter of civil adjudication and could not have been dismissed
by the learned Company Judge in a winding up petition.
15. The contract between the parties was concluded by
Schwabe by letter dated October 27, 2004. The Appellant in the
Reply to the Petition has filed a letter dated November 05, 2004,
Annexure R-18, wherein, along with other claims against the
Respondent, the Appellant had requested the Respondent to
repurchase the medicines in transit and also those in stock with
the Appellant. The Agreement required the Respondent to have
bought back these medicines within a stipulated time period
which the Respondent allegedly has not done. The arguments in
favour and against this claim would appropriately be considered
by a civil court for complete adjudication. It seems to us that
this stand of Appellant should be seen as a valid counterclaim.
As regards the claim towards medicines alleged to have been
made outside Germany but sold as being made in Germany,
Appellant had filed letters of correspondence filed as Annexures
21 and 30 where the Respondent was called upon to settle the
pending dispute. The learned Company Judge has held the claim
of the Appellant to be prima facie exorbitant, but its rejection
outrightly ought to have been avoided since that tantamounts to
a complete adjudication of disputed questions of fact. Similarly,
the aspect of wrongly frozen commission, for which the claims
were raised through letter/correspondence by the Appellant,
also requires adjudication in a civil court. In respect of the
remaining five counterclaims, since necessary documentation
had been filed only in the appellate proceedings, we will avoid
making any observations. However, these will obviously be
substantiated in the civil suit pending on the original side of this
Court.
16. The sum total of the amounts held to be valid
counterclaims raised in his Reply by the Appellant would add up
to € 2,79,0275 which, if proved, would be over and above the
debt claimed to be due to the Respondent before us. In this
conspectus, we are of the view that the Appellant had
successfully disclosed before the learned Company Judge that
there was a defence to the claim ventilated in the winding up
Petition. The legal consequence ought to have been that the
learned Company Judge should have directed the Petitioner to
prove its claim in a civil suit. In the light of the facts and
circumstances of the present case, the winding up order shall
stand recalled. The Appeal is accordingly allowed. Parties to
bear their own costs.
( VIKRAMAJIT SEN )
JUDGE
July 31, 2009 ( RAJIV SHAKDHER )
JUDGE
