Rama Peer Trader vs Scot Innovation Wires And Cables ...
2014 Latest Caselaw 173 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

                                         Reserved on: 16th December, 2013
%                                       Date of Decision: 9th January, 2014

+      CO.PET. 453/2012

       RAMA PEER TRADER                                       ..... Petitioner
                    Through:                 Mr Rana S Biswas and Mr Sunil
                                             Kr. Sharma, Advocates.

                          versus

       SCOT INNOVATION WIRES AND
       CABLES PVT. LTD.                        ..... Respondent
                     Through: Mr. A. K. Jain and Ms. Monica
                              Kapoor, Advocates.

CORAM:
HON'BLE MR. JUSTICE R.V.EASWAR

                                      JUDGMENT

R.V. EASWAR, J.:

1. This is a petition filed by M/s Rama Peer Trader under section

433(e) of the Companies Act, 1956 seeking winding up of M/s Scot

Innovation Wires and Cables Pvt. Ltd.

2. The petitioner is a proprietary firm of one Sitaram Solanki,

engaged in the business of manufacturing renewable plastic

granules/grains which are prepared from discarded plastic items. In July

2011, the petitioner was approached by the respondent-company for

supply of the above material, to be used in the manufacture of cables. It

is claimed by the petitioner that he had informed the respondent that the

renewable plastic granules may not be suitable for the manufacture of

cables and allied products and are normally used in the manufacture of

plastic mouldings and sheets. Despite this, the respondent-company

requested the petitioner to supply the material. From the end of July

2011, the petitioner started supplying the material to the respondent-

company. In a ledger account maintained in the name of the respondent-

company, the sales were debited and the payments received were

credited. The material was delivered at the factory of the respondent-

company at Baddi, Solan District, Himachal Pradesh. It is also seen from

the ledger account that whenever any material was returned by the

respondent-company, it was duly given credit in the ledger account. Such

an instance, as shown in the ledger account, was the goods returned under

GR No.983656 on 19.10.2011, the value of which was Rs.3,67,200/-. As

on 1.2.2012, the total material supplied to the respondent-company was

worth Rs.85,28,000/- The payments received, including the credit for the

goods returned, during this period amounted to Rs.42,24,207/-. Thus the

debit balance as on 01.02.2012, as per the ledger account was

Rs.43,03,793/-. The respondent-company made the last payment of

Rs.3,00,000/- on 16.1.2012. But thereafter no payments were made

though the petitioner supplied goods and debited the value of the goods in

the ledger account on 28.1.2012, 29.1.2012 and 1.2.2012.

3. Since no payments were forthcoming, the petitioner requested the

respondent to settle the account and it was pointed out that till such

settlement takes place, no further supplies would be made. Since no

payments were forthcoming despite several attempts made by the

petitioner, it issued a legal notice on 21.5.2012 notifying the respondent

that the balance outstanding should be paid within a period of 15 days

from the receipt of the notice and if it is not so paid, the petitioner would

charge interest at the rate of 18% per annum. It would appear that a copy

of the ledger account was also attached to the legal notice. Despite

service of the notice upon the respondent-company, including by e-mail,

there was no reply to the same. The petitioner has therefore filed the

present company petition for winding up.

4. Counsel for the petitioner submitted that since the respondent-

company could not pay the balance outstanding, it should be wound up

under section 433(e). It is pointed out that in order to ward off the

payment, the respondent-company filed a suit in the Court of the District

Judge, District West, Delhi against the petitioner for recovery of a sum of

Rs.20 lakhs as loss claimed to have been suffered by the respondent-

company on account of manufacture of cables by using the material

supplied by the petitioner. He contends that the suit is clearly an after-

thought and there is no evidence to show that it was only on account of

the defective material supplied by the petitioner, that the cables

manufactured by the respondent-company had cracked making them

unsuitable for use. It is also pointed out that the computation of loss at

Rs.20 lakhs as recoverable from the petitioner is without any basis or

evidence and is a mere assumptive attribution of the loss to the petitioner.

It is again pointed out on behalf of the petitioner that the respondent did

not raise any objection on receiving the material from the petitioner as to

the quality. Counsel for the petitioner also disputed the claim that the

respondent returned the material which was found defective, stating that

if the material was returned then there was no question of its being used

in the manufacture of cables. He points out that the only occasion on

which the material was returned by the respondent-company was on

19.10.2011 and the value of the material amounting to Rs.3,67,300/- was

duly given credit to the respondent-company in its ledger account.

Moreover, it is contended that the respondent-company was making

payments from September, 2011 till 16.1.2012 without any protest or

demur and had the material been defective, the respondent would not

have made those payments.

5. Counsel for the respondent however contends that this is not a case

of inability to pay on the part of the petitioner; it is a case of bona fide

dispute regarding the quality of the material supplied by the petitioner. It

is argued that the winding up petition is a counter-blast to the notice sent

by the respondent on 7.3.2012 seeking recovery of Rs.20 lakhs from the

petitioner. Attention is drawn to the letter dated 14th October, 2011

written by the respondent to the petitioner on the subject "bad quality of

PVC compound supplied" (Annexure R4-Colly). It is submitted that in

this letter the respondent-company has drawn the attention of the

petitioner that the "PVC Compound - Grey" supplied by the petitioner

and received on 9.10.2011 was to be rejected on colour scheme and on

quality parameters. The letter also says that the material will be returned

to the petitioner with a debit note for all expenses incurred after receiving

the same. Attention is also drawn to the "inter office memo" on the

subject "poor quality of PVC compound received from M/s Rama Peer

Trader". The memo was issued by the respondent-company to its

purchase department head, drawing his attention to the defects in the

quality of the material received from the petitioner and requesting him to

look into the matter and do the needful at the earliest. There is also a

letter dated 14.12.2011 written by Areva, a company to which the

respondent claims to have supplied cables, to the respondent-company,

drawing its attention to the defects in the cables manufactured by it and

cancelling the orders placed for some of the projects.

6. In his brief rejoinder, the counsel for the petitioner submitted that

the company petition is not a counter-blast to the notice dated 07.03.2012

said to have been issued by the respondent-company since even according

to the respondent-company, the said notice was not served on the

petitioner. The submissions made initially were reiterated.

7. I find no merit in any of the submissions made by the respondent-

company in its defence. There is no dispute that the statutory demand

notice sent under Section 434(1)(a) of the Act was served at the registered

office of the respondent-company. The debt is also not denied. What is,

however, contended by the respondent is that because of the defective

material supplied by the petitioner, the cables manufactured by it were

also defective and were rejected by its customers, which resulted in a

loss, a part of which is recoverable from the petitioner even after setting

off the amount due to the petitioner. If the goods were defective, it was

for the respondent to return the same. The ledger account of the

respondent-company maintained by the petitioner shows that on

19.10.2011, goods of the value of Rs.3,67,200/- were returned by the

respondent. The ledger account does not show any other return of the

goods. There is no evidence brought on record by the respondent to show

that apart from the above, some other goods were also returned.

Annexure R-4 (Colly.) does not contain any evidence to show that the

goods, allegedly found defective, were returned to the petitioner. The

letter dated 14.10.2011 said to have been written by the respondent to the

petitioner merely mentions that the material supplied "shall be returned

back to you with the debit note of all expenses incurred on the receipt".

This letter refers to goods received by the respondent on 09.10.2011 at its

factory. I find from the ledger account that on 08.10.2011, there is a debit

of Rs.3,76,992/- and a credit of Rs.3,67,200/- on 19.10.2011 representing

the value of goods returned as per GR No.983656 - Bill No.057 dated

08.10.2011. Therefore, it can be taken that the reference in the letter

dated 14.10.2011 is to the goods supplied by the petitioner under the

above bill. This return of goods actually finds place in the ledger account

on 19.10.2011. Apart from this there is no other credit in the ledger

account for goods returned. The respondent also does not have any proof

or evidence to that effect. The office memo dated 03.02.2012 is an

internal communication in the factory of the respondent; it merely

cautions its purchase department head that the goods have to be checked

physically for any defects. This does not prove that the goods supplied

by the petitioner were defective, though it refers to the goods supplied by

the petitioner. If the respondent was serious about the defects noticed in

the material supplied by the petitioner, in addition to cautioning its own

purchase department head, one would have expected it to bring the

defects to the notice of the person who supplied the material i.e. the

petitioner. Moreover, this office memo is dated 03.02.2012 by which

time the last of the supplies had been made. This appears to me to be a

self-serving record which cannot be given any credibility. The letter

dated 03.02.2012 addressed by the respondent to the petitioner on the

subject of "poor quality of PVC compound of outer sheathe"

acknowledges the fact that the material supplied by the petitioner was

"used for our various buyers". It was for the respondent to have

inspected the goods properly for defects. Once the goods have been used

and the cables supplied to various customers of the respondent, who also

admittedly used material supplied by several other suppliers, there should

be strict proof to show that the defects found in the cables were

attributable only to the material supplied by the petitioner. There is

absolutely no evidence to this effect. The statement of loss (Annexure R-

6) which contains the calculation of the loss of Rs.65,52,567/- attributable

to the petitioner is a statement made on several assumptions, none of

which is supported by any evidence. It merely attributes the total loss on

account of rejection of material by M/s. Crompton Greaves Ltd. and

transportation costs aggregating to Rs.1,25,93,220/- to the petitioner to

the extent of 56.25% thereof after reducing 43.75% as the average share

of the other suppliers on account of rejection. This statement is bereft of

any supporting material or evidence and appears to me to be an arm-chair

statement. Out of the share of the petitioner, the respondent has set off

the amount of Rs.42,64,268/- being the value of disputed bills issued by

the petitioner and has arrived at the balance of Rs.22,88,299/- recoverable

from the petitioner. From this figure, an amount of Rs.2,88,299/- is

deducted as waived and the balance amount recoverable is shown at

Rs.20,00,000/-; it is on the basis of this statement that the suit was filed in

the District Court by the respondent-company. The statement cannot be

taken as sacrosanct or even be relied upon in the absence of any evidence

or proof supporting it. Even the letter dated 14.12.2011 written by Areva

to the respondent (Annexure R-3) is a letter in which Areva has cancelled

the orders placed on the respondent for certain projects based on the

progress of the orders till then and various rejections which took place

during the inspections. I am unable to understand how this letter pins

down the liability for supplying defective material upon the petitioner.

8. It appears to me that the claim of the respondent that the material

supplied by the petitioner other than the material supplied under bill

No.057 dated 08.10.2011, on account of defects therein, had caused huge

loss to the respondent, the responsibility for which should be taken by the

petitioner, is clearly an afterthought. The contention of the respondent

that the legal notice issued by the petitioner was a counter blast to the

legal notice sent by the respondent on 07.03.2012 seeking recovery of

Rs.20,00,000/- from the petitioner is not acceptable, since even according

to the respondent, the notice dated 07.03.2012 could not be served on the

petitioner and was returned with the noting "no such person at this

address". It has been admitted so in para 8 of the counter filed by the

respondent. If the notice dated 07.03.2012 was not served on the

petitioner I do not see how the steps taken by the petitioner commencing

with the legal notice dated 21.05.2012 can be a counter blast to the same.

9. In the course of the arguments before me, I requested the learned

counsel for the respondent to produce the copies, if any, of other debit

notes said to have been sent by the respondent to the petitioner to

substantiate its claim that the material supplied under disputed bills were

actually returned to the petitioner. Till the close of the hearing, the

respondent who was present in Court through its authorised

representative, could not produce any of the debit notes though it was

asserted that the respondent did send those debit notes.

10. Therefore, it seems to me to be a case where the defence put up by

the respondent is not bona fide, is mere moon-shine. Except one debit

note and return of the goods to the petitioner, for which credit was given

by the petitioner, no other goods were returned. The other goods supplied

by the petitioner were used by the respondent for manufacture of cables.

There is no evidence adduced by the respondent to prove that the alleged

defects in the cables manufactured by it were on account of defective

materials supplied by the petitioner, particularly when admittedly the

respondent was getting material also from other suppliers. It seems to me

that the respondent raised the bogey of loss recoverable from the

petitioner only to ward off the claim of the petitioner with regard to the

balance amount outstanding in the ledger account. The defences raised

by the respondent do not have any substance.

11. I accordingly admit the winding-up petition.

List for further proceedings on 12.02.2014.

(R.V. EASWAR) JUDGE JANUARY 09, 2014 vld/hs