M/S Nakshatra Steel Sales & ... vs M/S Radlay Metal Products Pvt. ...
2014 Latest Caselaw 2248 Del

               THE HIGH COURT OF DELHI AT NEW DELHI

%                                Judgment delivered on: 05.05.2014

+        CO.PET.373/2012 & CA No. 1485/2012
M/S NAKSHATRA STEEL SALES & SERVICES LTD. ..... Petitioner
                                   versus
M/S RADLAY METAL PRODUCTS PVT. LTD.                        ..... Respondent

                                   AND

+        CO. PET. 375/2012 & CA No. 1492/2012

M/S LEO ISPAT LTD.                                         ..... Petitioner
                                   versus
M/S RADLAY METAL PRODUCTS PVT. LTD.                        ..... Respondent

Advocates who appeared in this case:
For the Petitioners  : Mr Vivek Singh.
For the Respondents  : Mr Tanmaya Mehta.

CORAM:-
HON'BLE MR JUSTICE VIBHU BAKHRU

                               JUDGMENT

VIBHU BAKHRU, J

1. The present petitions have been filed by the petitioner companies under sections 433(e) and 434 of the Companies Act, 1956 (hereinafter referred to as the 'Act'), inter alia, praying for winding up of the respondent company on the ground that the respondent company has failed and neglected to pay a sum of `1,03,18,917/- along with late payment

charges (in Co. Pet. No.373/2012) and a sum of `1,18,11,927/- along with late payment charges (in Co. Pet. No.375/2012), which are contended to be due and payable by the respondent company on account of supply of various iron and steel products by the petitioner companies. Although, the respondent disputes the liability as claimed by the petitioners, it is admitted that the respondent owes an aggregate sum of `1,56,00,000/- to both the petitioner companies. Notwithstanding the respondent's contention that it owed only a sum of `1,56,00,000/- to the petitioners, the respondent offered to pay the petitioners an aggregate sum of `1,79,00,000/-. The respondent has offered to pay the said amount because the respondent had already issued cheques for the said amount in favour of the petitioner companies, which had been dishonored. And, proceedings under section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as 'NI Act') had been instituted by the petitioners with respect to the dishonored instruments.

2. The controversy that needs to be addressed in the present petitions is whether the defense raised by the respondent company is bonafide or a sham defence. And, whether the petition is maintainable in view of the offer made by the respondent to pay an amount of `1,79,00,000/- to the petitioner.

Co. Pet No.373/2012

3. Brief relevant facts with respect to Co. Pet No. 373/2012 are as follows:-

3.1 The petitioner company supplied various iron and steel products to the respondent company as per the agreed specifications. The petitioner had

raised various bills for the materials supplied and the petitioner has provided the details of the invoices which have remained unpaid. It is stated that the respondent company has failed to make the payment of the bills amounting to `1,03,18,917/- despite receiving the delivery of products. The petitioner has further stated that the respondent is liable to pay interest at the rate of 4% per month on the delayed payment. It is submitted that the said rate of interest has been agreed and specifically mentioned in the invoices raised by the petitioner. It is stated that the late payment charges are not claimed as penalty but as pre-determined assessment of loss suffered by the supplier petitioner on account of any delay in the payment. Therefore, the petitioner has claimed and is entitled for an amount of `1,66,19,726/- as late payment charges till 31.1.2012.

3.2 It is stated that the respondent issued various cheques for an amount aggregating to `97,56,145/- in discharge of its liabilities, however, the said cheques were dishonoured. The petitioner, by separate notices dated 27.02.2012 under section 138 of the NI Act, demanded amounts of `20,08,692/-, `27,47,607/-, `28,45,540/- and `21,54,306/- on account of the dishonour of the cheques for the respective amounts. The respondent replied to the said notices, by its separate replies dated 20.03.2012 and raised the issue of inferior quality of goods being supplied by the petitioner and non-adjustment of debit notes for an amount aggregating to `20,20,431/- (`5,31,259/- dated 09.09.2011, `8,31,814/- dated 04.02.2012 and `6,57,358/- dated 18.12.2011). It is submitted by the petitioner that, as the respondent failed to pay the said amounts within the time specified in the notices, the petitioner initiated proceedings under section 138 of the NI

Act and filed Criminal Complaints being Complaint No.190/1 (with respect to the notice for `20,08,692/-), Complaint No.194/1 (with respect to the notice for `27,47,607/-), Complaint No.195/1 (with respect to the notice for `28,45,540/-) and Complaint No.196/1 (with respect to the notice for `21,54,306/-).

3.3 Subsequently, the petitioner also sent a statutory notice dated 11.05.2012, under section 434(1)(a) of the Act, demanding the amount of `1,03,18,917/- along with late payment charges of `1,66,19,726/- till 31.01.2012. The said statutory notice elicited no response from the respondent company. Thereafter, the petitioner filed the present winding up petition on the ground that the respondent company was deemed to be unable to pay its debts as the respondent had failed to pay the amount of `1,03,18,917/- along with late payment charges, which were alleged to be admittedly due, despite service of the statutory notice.

3.4 The respondent has disputed three invoices being invoice nos. 161, 162 and 163 dated 20.07.2011 for an aggregate sum of `5,62,771/-. The respondent has also raised disputes with respect to the quality of the goods supplied by the petitioner and in that respect had also raised a debit note for a sum of `20,20,431/-.

Co. Pet No.375/2012

4. Brief relevant facts with respect to Co. Pet No. 375/2012 are as follows:-

4.1 The petitioner company supplied various iron and steel products to the respondent company as per agreed specifications. The petitioner had

raised various bills for the materials supplied and the petitioner has provided the details of the invoices which have remained unpaid. It is stated that the respondent company has failed to make the payment of the bills amounting to `1,18,11,927/- despite receiving the delivery of products. The petitioner has further stated that the respondent is liable to pay interest at the rate of 4% per month on the delayed payment. It is submitted that the said rate of interest has been agreed and specifically mentioned in the invoices raised by the petitioner. It is stated that the late payment charges are not claimed as penalty but as pre-determined assessment of loss suffered by the supplier petitioner on account of any delay in the payment. Therefore, the petitioner has claimed and is entitled for an amount of `43,14,976/- as late payment charges.

4.2 It is stated that the respondent issued various cheques for an amount aggregating to `81,46,886/- in discharge of its liabilities, however, the said cheques were dishonoured. The petitioner, by separate notices dated 03.03.2012 and 14.03.2012 issued under section 138 of the NI Act demanded amounts of `27,27,571/-, `16,97,060/- and `37,39,930/- on account of the dishonour of the cheques for the respective amounts. It is stated that the respondent failed to pay the said amounts within the time specified in the notices, therefore, the petitioner initiated proceedings under section 138 of NI Act and filed Criminal Complaint No.205/1 (with respect to the notice for `27,27,571/-), Complaint No.206/1 (with respect to the notice for `16,97,060/-) and Complaint No.235/1 (with respect to the notice for `37,39,930/-). The respondent replied to the said notices, by its separate replies dated 30.03.2012 and 30.04.2012 and raised the issue of the inferior

quality of goods being supplied by the petitioner and non-adjustment of a debit note.

4.3 Thereafter, the petitioner also sent a statutory notice dated 14.04.2012, under section 434(1)(a) of the Act, demanding the amount of `1,18,11,927/- along with late payment charges. The said statutory notice elicited no response from the respondent company and therefore, the petitioner filed the present winding up petition. Subsequently, the respondent company filed applications dated 31.08.2012, in the proceedings initiated under section 138 of the NI Act before the Metropolitan Magistrate, Saket, Delhi, for making the payments of the amounts reflected in the dishonored cheques. By an order dated 31.08.2012, the Metropolitan Magistrate rejected the said application as the petitioner had declined to accept the said amount.

4.4 The respondent filed a reply to the petition, raising disputes regarding the quality of goods supplied by the petitioner and further stated that the amount claimed by the petitioner did not account for a debit note dated 14.11.2011 for an amount of `1,72,108/-. The respondent also disputed the bill nos.83 & 84 dated 08.12.2011, bill nos.90 & 92 dated 20.12.2011 and bill nos. 93 & 94 dated 21.12.2011 aggregating `36,65,042/-

Submissions

5. It was contended by the learned counsel for the petitioners that the respondent has failed and neglected to pay the amount due and payable by the respondent company, towards the goods supplied by the petitioner

along with the late payment charges, despite service of the statutory notice. The learned counsel for the petitioner also emphasized that the respondent had issued cheques, which were dishonored. It was submitted that the cheques issued by the respondent clearly indicated that the respondent was indebted to the petitioners.

6. The petitioner also claimed that it was entitled to late payment charges at the rate of 4% per month. It was submitted that the late payment charges has been mentioned in the invoices and, therefore, the amount of the late payment charges are admitted and payable by the respondent company.

7. At the outset, the learned counsel for the respondent stated that although, there are bona fide disputes with respect to the goods supplied by the petitioner and the debit notes issued by the respondent have not been accounted for by the petitioner, the respondent was ready and willing to tender the amount of `1,79,00,000/- being the amount for which cheques had been issued by the respondent to the petitioners. It was also suggested that the petitioners could initiate a civil action for recovery of any further sum that the petitioners felt were due and payable by the respondent. However, as said payment was being tendered in lieu of dishonored cheques the proceedings under Negotiable Instruments Act would not proceed. This suggestion was not acceptable to the petitioner and the petitioner insisted that the respondent would also have to pay the late payment charges if the proceedings under the Negotiable Instruments Act were to be compromised.

8. It was contended by the learned counsel for the respondent that the present petitions were not maintainable as the amounts claimed by the petitioners were disputed. It is contended that the amounts claimed by the petitioners included additional bills that had not been accepted. It was further submitted that the quality of the goods supplied by the petitioner were defective and the respondent had issued debit notes that had not been accounted for by the petitioner. The respondent further submitted that in terms of the understanding between the parties, the petitioner companies had agreed to make supplies on 4-5 months credit against undated cheques. It was alleged that the petitioner had misused the said cheques furnished by the respondent as security and presented the same.

9. The respondent has further contested the delayed payment charges claimed by the petitioner. It was contended that the invoices raised by the petitioner had surreptitiously included a clause for delayed payment charges. The said clause had not been agreed to between the parties. Consequently, the respondent had scored off the said clause on the invoices acknowledged by the respondent. The learned counsel for the respondent urged that the copies of the invoices produced by the petitioner alongwith its petition were not the ones that were acknowledged by the respondent. It was further contended that the delayed payment charges @4% per month were unconscionable and in any event could not be enforced by the petitioner.

10. It was submitted that the present petitions were not maintainable as the respondent was fully capable of making payments to its creditors. The learned counsel also submitted that the tender of demand drafts for the

amounts in excess of the admitted dues, amply demonstrated that the respondent was not insolvent and was capable to discharge its debts.

11. I have heard the learned counsel for the parties.

12. A petition for the winding up of the company under Section 433(e) of the Act is maintainable if the company is unable to pay its debt. A company is deemed to be unable to pay its debt, if a demand is made on the company for the amount due and payable by the company and the company has failed and neglected to pay its debt. However, there can be no presumption of inability to pay debts where the same are not accepted as such. Where the company is solvent and claim raised by the creditor is disputed by the respondent company, then a proceeding for winding up is not maintainable.

13. In the present case, it is not disputed that the materials were supplied by the petitioners to the respondent. In Co. Pet. No.373/2012, the petitioner has raised a claim for an amount of `1,03,18,917/- and in Co. Pet. No.375/2012, the petitioner has claimed an amount of `1,18,11,927/- towards the supplies made to the respondent. The respondent, however, disputes the claim of the petitioners on the ground that the petitioners supplied inferior quality material due to which the respondent alleged that it had suffered huge losses which the petitioners were liable to make good. It is pertinent to note that the dispute with regard to inferior quality of the goods supplied by the petitioner was raised by the respondent in its reply to the notice issued under Section 138 of the NI Act and the respondent had also raised debit notes on that account. Therefore, the dispute existed even

before issuance of the statutory notice under Section 434(1)(a) of the Act and filing of the present petitions. The respondent by its similar replies dated 20.03.2012, 30.03.2012 and 30.04.2012 replied to various notices issued by the petitioner under Section 138 of the NI Act and the relevant extract of the reply dated 20.03.2012 is extracted hereinbelow:-

"That your clients representative also ensured my client to be supplied with the good quality of only ESSAR STEEL STOCK but during the period of dealings, my client noticed that your client started supplying the inferior quality of material belonging to STEEL AUTHORITY OF INDIA, which resulted rejection of the manufactured stocks at the initial manufacturing level. Further the customers of my clients also rejected the final products supplied to them due to poor quality of raw material (Steel). By this way my clients were put to financial loss, as well as loss to their reputation and good will, besides mental tension, due to the fault of inferior stocks supplied by your clients. My clients raised their objections to such defective supplies to your clients and besides replacement of the inferior stocks they also raised debit notes to your client worth more than Rs. 20,00,000/- and the copies of such debit notes were handed over to the representative of your clients, on their refusal to acknowledged the same, my clients were compelled to dispatch the same by speed post on 09/02/2012 to your clients.

That after the supply of the inferior quality of stocks and having received the Debit Notes your clients have refused to adjust the said debits and have been insisting, and pressurizing my clients to make the entire payments, without adjusting the debit notes and, have further been pressurizing my client to make payment of further Interest @4%, though there has been no such agreement or understanding for the delayed payment between my clients and the said representative of your client SH. DEVI DAYAL GARG."

14. Although, there appears to be some disputes with regard to the quality of goods, however, substantial parts of the amount claimed by the petitioner is undisputedly payable by the respondent. And, the respondent not only tendered the amount as admitted by it but also tendered the amount disputed by the respondent for which debit notes were issued. This itself indicates that the respondent company is able to pay its debts and could not be considered as commercially insolvent.

15. The second issue is with respect to the late payment charges claimed by the petitioner. The petitioner claims that interest at the rate of 4% per month is payable by the respondent on the delayed payment. It is contended by the petitioner that the said rate of interest was mentioned in the invoices raised and the same was agreed and acknowledged by the respondent. Therefore, the amount towards the late payment charges was due and payable by the respondent. On the other hand, the respondent has contended that the respondent used to strike out the said clause on the copies of the bills which were acknowledged by it, therefore, there was no agreed rate of interest. It was further contended that the delayed payment charges are in the nature of penalty which cannot be the subject matter of the present proceedings. The respondent in its replies dated 20.03.2012, 30.03.2012 and 30.04.2012 to various notices issued by the petitioner under Section 138 of the NI Act also disputed the amount claimed towards the late payment charges. In view of the above, there exists a bona fide dispute with regard to the amount towards the late payment charges and the same cannot be said to be due and payable by the respondent company.

16. Further, it is a settled principle that mere mentioning a stipulation with regard to delayed payment interest in a bill or invoice would not per se constitute an agreement for payment of interest. The Rajasthan High Court in the case of Kitply Industries Ltd. v. Hari Narain and Sons Pvt. Ltd.: [1998] 91 Comp Cas 715 (Raj), has held as under:-

"16. ... It can, thus, be said that till the petitioner has completed the supply of goods there was no agreement between the parties regarding payment of interest. The claim of interest was, for the first time, made by the petitioner when it sent bills to the respondent and the only basis for claiming interest is that when it had sent the bills to the respondent an implied agreement came into existence between the parties. In my opinion, the petitioner's plea that an implied agreement had been arrived at between the parties, cannot be accepted merely because in the printed bills sent to the respondents a condition had been incorporated that if the respondent fails to make payment within seven days, the petitioner shall be entitled to claim interest at the rate of 21 per cent. The petitioner was free to incorporate any condition in its bills sent to the respondent, but those conditions cannot be construed as part of the contract arrived at between the parties. The respondent company has seriously contested the claim of the petitioner that it had agreed to pay interest to the petitioner on its failure to make payment of the bill within a specified time. ...... In my opinion, in the absence of any agreement between the parties, the dispute which the respondent has raised regarding its liability to pay interest cannot be treated as a fictitious or frivolous dispute. There is sufficient justification in the claim of the respondent that the dispute is a bona fide dispute. It is also to be noted that the petitioner has not even said that the parties had agreed for payment within a particular time period. In the absence of such an agreement, the claim made by the petitioner for his right to get interest at the rate of 18 per cent. or 21 per cent. cannot be treated as an admitted debt. Thus, I am clearly of the opinion that the respondent has raised a dispute of substantial nature

and it is not possible to hold that the respondent has failed to pay debt due from it."

A single judge of this court has concurred with the aforesaid view in Naptha Resins & Chemicals Ltd. v. Flow-Tech Air (P) Ltd.: [2003] 4 Comp LJ 489 (Delhi).

17. In view of the controversy with regard to the delayed payment charges claimed by the petitioner, the same can by no stretch be considered to be a debt admitted by the respondent. In order to claim any amount on account of late payment charges, First of all, the petitioner would have to establish that there was an agreement between the parties that such charges would be paid. The respondent has stated that the clause for delayed payment charges was never agreed upon and had been deleted by the respondent in the invoices acknowledged by it. The petitioner has disputed the same and has stated that there were no invoices available with the petitioner which had been acknowledged by the respondent. This clearly is a substantial dispute that would require to be adjudicated. Secondly, the delayed payment charges claimed by the petitioners are in the nature of damages and the petitioners would have to establish that the same reflects reasonable damages suffered by the petitioners. Prima facie, charges at the rate of 4% per month (i.e. 48% per annum) seem unconscionable. The respondent has not admitted that the same are payable and the omission on the part of the respondent to pay the same cannot be inferred as indicating that the respondent is unable to pay its debts.

18. The respondent has also disputed certain specified bills and the petitioner would have to establish that the goods of the requisite description had been supplied and accepted by the respondent.

19. It is trite law that the proceedings before a company court are not recovery proceedings and the company court cannot be used as a debt collecting agency or as a means of bringing improper pressure on the company to pay a bona fide disputed debt. A company court should not exercise its discretionary power provided under Section 433 of the Act where there is ample material on record to substantiate the fact that there are substantial and bona fide disputes against the amount claimed by the creditor of the company. The Supreme Court in the case of IBA Health (I) (P) Ltd. v. Info-Drive Systems Sdn. Bhd.: (2010) 10 SCC 553 has held as under:-

"33. We may notice, so far as this case is concerned, there has been an attempt by the respondent Company to force the payment of a debt which the respondent Company knows to be in substantial dispute. A party to the dispute should not be allowed to use the threat of winding-up petition as a means of enforcing the company to pay a bona fide disputed debt. A Company Court cannot be reduced as a debt collecting agency or as a means of bringing improper pressure on the company to pay a bona fide disputed debt. Of late, we have seen several instances where the jurisdiction of the Company Court is being abused by filing winding-up petitions to pressurise the companies to pay the debts which are substantially disputed and the courts are very casual in issuing notices and ordering publication in the newspapers which may attract adverse publicity. Remember, an action may lie in appropriate court in respect of the injury to reputation caused by maliciously and unreasonably commencing liquidation proceedings against a company and later dismissed when a proper defence is made out on substantial grounds. A creditor's winding-up petition implies insolvency and is likely to damage the company's creditworthiness or its financial standing with its creditors or customers and even among the public.

xxxx xxxx xxxx xxxx xxxx

35. ..... A Company Court, therefore, should act with circumspection, care and caution and examine as to whether an attempt is made to pressurise the company to pay a debt which is substantially disputed. A Company Court, therefore, should be guarded from such vexatious abuse of the process and cannot function as a debt collecting agency and should not permit a party to unreasonably set the law in motion, especially when the aggrieved party has a remedy elsewhere."

20. In view of the above, I am unable to accept that the respondent company is unable to pay its debts and is liable to be wound up by virtue of Section 433(e) of the Act.

21. Before concluding, I must add that it appears that the present proceedings had been initiated by the petitioners to pressurize the respondent. After filing of the present proceedings, the respondent had tendered the amount of cheques to the petitioners, in proceeding under the NI Act, before the Metropolitan Magistrate. However, the petitioner had refused to accept the same. Accordingly, by an order dated 31.08.2012, the Metropolitan Magistrate rejected the said applications filed by the respondent as the petitioner had refused to accept the amount offered by the respondent. The relevant portion of the said order dated 31.08.2012 is extracted hereinbelow:-

"In view of totality of circumstances, after going through the record and hearing the submissions of both parties, this application for paying the cheque amount is also rejected as the complainant has submitted that the cost of compounding shall be greater and the complainant is not ready to settle the present complaint only on cheque amount, therefore, the complainant wants to proceed with the case and wants to see the accused

punished because the accused has made the complainant run from pillar to post in order to get back this hard earned money which is a travesty of justice."

22. Even in the present proceedings, the petitioner had refused to accept the amount of `1.79 crores tendered by the petitioner in lieu of the dishonored cheques and the petitioner has insisted that the delayed payment charges be also paid as a precondition for it to settle the pending proceedings. In this view, it is apparent that the present proceedings are being pursued by the petitioner only for extracting further sums that are disputed by the respondent. In my view, pursuit of the present proceedings is clearly an abuse of process of Court. The proceedings under Section 138 of the Negotiable Instrument Act are also being, apparently, pursued to pressurize the respondent to succumb to the demands with respect to the late payment charges. In this view, it is apparent that the conduct of the petitioner has been less than fair.

23. In view of the above, the present petitions and the pending applications are dismissed with cost quantified at `5,000/-.

VIBHU BAKHRU, J MAY 05, 2014 RK