Tata Iron & Steel Company Limited v. M/s.Omega Cables Limited

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 29.04.2009CORAM :THE HONOURABLE MR.JUSTICE D.MURUGESANandTHE HONOURABLE MR.JUSTICE C.S.KARNANO.S.A. No.172 of 2008Tata Iron & Steel Company Limited,Rep. By its Power of Attorney Holder,K.E.Srinivasan (Regional AccountsManager), Anna Salai, Chennai... Appellant-vs-M/s.Omega Cables Limited16-17 New No.20, Industrial Estate,Ambattur, Chennai... RespondentAppeal against the Order dated 29.2.2008 made in C.P.No.54 of2006.For Appellant:Mr.R.MurariFor Respondent:Mr.R.SrinivasJ U D G M E N TD.MURUGESAN, J.The facts as put forth by the appellant are as follows:-Tata Iron and Steel Company Limited, the appellant herein, is acompany incorporated under the Companies Act, 1956 (hereinafterreferred to as 'the Act'), having its registered office at Mumbai andregional office at Chennai. A company by name Tata SSL Limited usedto supply materials to M/s.Omega Cables Limited (hereinafter referredto as 'the respondent company'), a company incorporated under the Actand has its registered office at Chennai, from the year 2001. Thesaid Tata SSL Limited raised various invoices on the respondentcompany amounting to a sum of Rs.33,50,386/-, apart from an InterestDebit Note dated 18.7.2001 for a sum of Rs.4,99,015/-. As against thesaid amount, the respondent company effected only a part payment ofRs.4,54,542.81 and still a sum of Rs.31,51,399/- remains due andpayable by the respondent company. Without paying the outstandingamount, the respondent company, by a letter dated 21.3.2002, informedthe Tata SSL Limited that they have taken steps to bring the normalcy https://hcservices.ecourts.gov.in/hcservices/ and the company shall produce normal production and start releasingthe payments against the outstanding bills. Subsequently, the saidTata SSL Limited was merged with M/s.Tata Iron and Steel Limited(hereinafter referred to as 'the appellant company') and theamalgamation was sanctioned by the order of the High Court, Mumbai,dated 3.4.2003 in C.P.No.100 of 2003. A notice was sent by the TataSSL Limited earlier on 30.3.2002 and in spite of the undertakinggiven by the respondent company in their letter dated 21.3.2002, nopayments were made. Hence, the Tata SSL Limited caused a statutorynotice dated 23.8.2004 calling upon the respondent company to pay thesaid sum of Rs.31,51,399/- with further interest thereon within 21days of receipt of the notice. It is the case of the appellantcompany that though the said notice was duly served on 27.8.2004, therespondent company failed to pay the balance outstanding andtherefore, another notice in the name of the appellant company wasissued on 6.5.2005. The said notice was returned with the postalendorsement 'company closed'. Invoking Section 433 (e) and (f) readwith 434 (1) (a) and 439 (11) (g) of the Act, the appellant companyapproached this Court for winding up of the respondent company on theground that the respondent company failed and unable to pay thedebts. 2.The said petition was resisted by the respondent company ontwo grounds. Firstly, it was opposed that the appellant company hadfailed to prove that the amount due is undisputed and there was noproper statutory notice before a petition for winding up was filed.The learned Judge, while accepting the case of the appellant thatproper statutory notice was served on the respondent company, did notaccept the relief of winding up on the ground that the appellantcompany had failed to prove that there is no dispute in respect ofthe amount. Hence, the present appeal.3.We have heard Mr.R.Murari, learned counsel appearing for theappellant and Mr.R.Srinivas, learned counsel appearing for therespondent.4.Mr.R.Murari, the learned counsel, would submit that therespondent company had accepted the outstanding amount in theirletter dated 21.3.2002 and there is no dispute as to the amount. Thestatutory notice issued on 30.3.2002 in the name of Tata SSL Limitedrefers to the sum actually due to the appellant company. Further, inthe lawyer's notice dated 23.8.2004 issued in the name of Tata SSLLimited, the amount was mentioned. Lastly, the notice dated 6.5.2005issued in the name of the appellant company also contains theoutstanding amount. The respondent company had not disputed the saidamount by any reply. It is not necessary to quantify the amount inthe notice. Hence, there is no dispute and the appellant company hadproved the actual outstanding amount due to them from the respondentcompany. In terms of Section 434(1)(a) of the Act, the Company shallbe deemed to be unable to pay its debts if the amount claimed in the https://hcservices.ecourts.gov.in/hcservices/ statutory notice exceeding Rs.1 lakh is not paid or the Companyneglected to pay the said amount within three weeks from the date ofreceipt of notice. Further, it is contended that the authorisedsignatory of the respondent company had acknowledged the balanceconfirmation statement dated 19.7.2002 and had not objected to thebalance amount mentioned therein, viz., Rs.31,51,399/-. Therefore,even a mere failure to mention the actual quantum of amount will notby itself lead to the conclusion that the claim is disputed. Hence,the appellant company has not only established the actual outstandingamount due to them from the respondent company, but also hasestablished that the respondent company is unable to pay their debts.Therefore, the petition for winding up should have been ordered.5.Mr.R.Srinivas, the learned counsel, would, on the other hand,submit that the notice issued in the name of the erstwhile company,M/s.Tata SSL Limited cannot be considered to be one of a statutorynotice issued by the appellant company. The only notice sent in thename of the appellant company was dated 6.5.2005, which was notserved, as the same was returned to the counsel with postalendorsement 'company closed'. In the absence of any statutorynotice, the appellant company cannot maintain a winding up petition.He would also submit that there is a dispute relating to the claim assuch. At no point of time, the respondent company admitted theoutstanding amount claimed by the appellant company. The endorsementof the authorised signatory of the respondent company in the balanceconfirmation statement dated 19.7.2002 cannot, by any stretch ofimagination, be considered that the amount was accepted by therespondent company. In fact, in the note to the said balanceconfirmation statement, the appellant company itself had requestedthe respondent company by stating "Please confirm the balance asshown above within 10 days from the date of receipt", thereby meaningthat even the appellant company was not sure about the actualoutstanding amount due. Hence, there is a bonafide dispute as to theclaim. Further, most of the claims as could be seen from the balanceconfirmation statement relate to the years 1998 and 1999 and thoseclaims are barred by limitation. Therefore, the actual quantum ofoutstanding has not been proved. In the absence of the same, thepetition for winding up has been rightly rejected by the learnedsingle Judge, as the defence of the respondent company is notmoonshine.6.We have carefully considered the above submissions. Insofaras the issue whether the appellant company had served the statutorynotice on the respondent company before the winding up petition wasfiled is concerned, the learned Judge had accepted that there was aservice of notice on the respondent company before the winding uppetition was filed and therefore, there was statutory compliance.The said finding has not been questioned by the respondent company byfiling cross objections. Therefore, we are not inclined to go intothe said question and on the other hand, proceed to consider the https://hcservices.ecourts.gov.in/hcservices/ challenge to the order on the ground whether the appellant companyhad proved that the actual amount due is undisputed and whether therespondent company is unable to pay the debts.7.In terms of Section 433 (e) of the Act, the Court would orderwinding up of a company, if the company is unable to pay its debts.In the event a claim is doubtful requiring adjudication, it is not adebt as contemplated under Section 433(e) of the Act. Whileconsidering whether there is a dispute as to the actual claim, theCourt must not only satisfy itself as to the proof of such debt, butalso the bona fides in opposing a petition for winding up with adefence which is not moonshine. The company Court cannot adjudicatethe disputed questions and pass orders of winding up. The approachof the Court while dealing with a petition for winding up must bethat a company should not be ordered to be wound up unless it isproved to the satisfaction of the company Court on the above twogrounds that there was no dispute as to the claim and that thecompany against which the winding up petition is filed is unable topay the debts. The provisions of Section 433 does not confer on anyperson a right to seek an order that the company shall be wound up.It only confers powers on the Court to pass order of winding up inappropriate cases and the right of the Court is discretionary. Itdoes not empower a person to seek enforcement of bona fide disputeddebts, as the proceedings of winding up cannot be adopted as a courseto recover the debts.8.Before we consider further, we may refer to the proposition oflaw as enunciated by the Apex Court. In Amalgamated CommercialTraders (P.) Ltd. v. C.K.Krishnaswami and another (1965) 35 Comp.Cases 456 (SC), the Apex Court has held as follows:-"It is well-settled that 'a winding up petition is not alegitimate means of seeking to enforce payment of the debtwhich is bona fide disputed by the company. A petitionpresented ostensibly for a winding up order but really toexercise pressure will be dismissed, and undercircumstances may be stigmatized as a scandalous abuse ofthe process of the court. At one time petitions founded ondisputed debt were directed to stand over till the debt wasestablished by action. If, however, there was no reason tobelieve that the debt, if established, would not be paid,the petition was dismissed. The modern practice has been todismiss such petitions. But, of course, if the debt is notdisputed on some substantial ground, the court may decideit on the petition and make the order."In Madhusudan Gordhandas and Co. V. Madhu Woollen Industries Pvt.Ltd., Mahendra B.Parikh and Others, 1971 (3) SCC 632, again the ApexCourt, upon considering the judgment in Amalgamated CommercialTraders (P.) Ltd., cited supra, had opined as under:- https://hcservices.ecourts.gov.in/hcservices/ "20. Two rules are well settled. First, if the debt is bonafide disputed and the defence is a substantial one, thecourt will not wind up the company. The court had dismisseda petition for winding up where the creditor claimed a sumfor goods sold to the company and the company contendedthat no price had been agreed upon and the sum demanded bythe creditor was unreasonable: see London and Paris BankingCorporation. Again, a petition for winding up by a creditorwho claimed payment of an agreed sum for work done for thecompany when the company contended that the work had notbeen properly was not allowed: see Re Brighton Club andHorfold Hotel Co. Ltd.)"In the above judgment, the Apex Court had enunciated the followingprinciples:-(i)Where the debt is undisputed, the court will not act upon adefence that the company has the ability to pay the debt butdid not choose to pay that particular debt;](ii)Where, however, there is no dispute that the company passedthe creditor a debt entitled him to a winding up order butthe exact amount of the debt is disputed, the court willmake a winding up order without requiring the creditor toquantify the debt precisely;(iii)The principles which the court acts are fist that thedefence of the company is in good faith and one ofsubstance, secondly, the defence is likely to succeed inpoint of law and, thirdly, the company adduced prima facieproof of the facts on which the defence depends.The above principles were again reiterated by the Apex Court inMediqup Systems vs. Proxima Medical Systems (GMBH) [(2005) Vol.124Comp.Cases 473]. In the said judgment, it was held that the defenceraised by the appellant-company was a substantial one and not meremoonshine and had to be finally adjudicated upon on the merits beforethe appropriate forum. There was no justification whatsoever foradmitting the winding up petition.9.In Amalgamated Commercial Traders (P.) Ltd.'s case, thedecision first cited supra, the Apex Court was considering a disputewhether the creditor claimed a sum of goods sold to the company andthe company contended that no price has been agreed upon and the sumdemanded by the creditor was unreasonable. In circumstances, the ApexCourt found that there was a bona fide dispute as to the claim assuch. In Madhusudan Gordhandas & Co. v. Madhu Woollen IndustriesPvt. Ltd., the decision second cited supra, the Apex Court hasnegatived the contention that there was no precise sum which was owed https://hcservices.ecourts.gov.in/hcservices/ to the petitioner, as it was not a sufficient answer to the petition.Of course, in the latter case, the Apex Court considered the rate ofinterest and while considering the same, it was held that it would bequite unjust to refuse a winding up order to a petitioner, who isadmittedly owed moneys, which had not been paid merely because thereis a dispute as to the precise amount owing.10.Both the above judgments were considered by the Apex Courtrecently in the judgment rendered in Vijay Industries v. NATLTechnologies Ltd., (2009) 2 Comp LJ 175 (SC). In the said case, whileconsidering the scope of Section 433, the Apex Court had observed asfollows:-"33. Section 433 of the Companies Act does not state thatthe debt must be precisely a definite sum. It has not beendisputed before us that failure to pay agreed interest orthe statutory interest would come within the purview of theword 'debt'. It is one thing to say that the amount of debtis not definite or ascertainable because of the bona fidedispute raised thereabout or there exists a dispute asregards quantity or quality of supply or such otherdefences which are available to the purchaser; but it isanother thing to say that although the due as regards theprincipal amount resulting from the quantity or quality ofsupply of the goods stands admitted but a question israised as to whether any agreement had been entered intofor payment of interest or whether the rate of interestwould be applicable or not. In the latter case, in ouropinion, the application for winding up cannot bedismissed."In the said judgment, the Apex Court also considered the judgment ofa Division Bench of this Court in Tube Investments of India Ltd. v.Rim and Accessories (P) Ltd. (1990) 3 Comp LJ 322 (Mad), where thefollowing principles relating to bona fide dispute had been evolved:-"(1) If there is a dispute as regards the payment of thesum towards principal, however small that sum may be, apetition of winding up is not maintainable and thenecessary forum for determination of such a disputeexisting between the parties is the civil court;(2) The existence of a dispute with regard to payment ofinterest cannot at all be construed as existence of a bonafide dispute relegating the parties to decide such adispute before the civil court and in such an eventuality,the company court itself is competent to decide such adispute in the winding-up proceedings; and(3) If there is no bona fide dispute with regard to the sumpayable towards the principal, it is open to the creditorto resort to both the remedies of filing of a civil suit as https://hcservices.ecourts.gov.in/hcservices/ well as filing of a petition for winding-up of thecompany."After discussing the above judgments, the Apex Court in VijayIndustries case, cited supra, ultimately found that it is not arequirement of law that the entire debt must be definite and certain.11.Of course, Mr.R.Srinivas, learned counsel appearing for therespondent company would submit that the finding rendered in VijayIndustries case, cited supra, is not applicable to the present case,as the debt is bona fide in respect of the principal amount. In ouropinion, the judgment of the Apex Court in Vijay Industries casecannot be read as intended by the learned counsel for the respondent.What is relevant is the bona fide dispute and correspondingly, theinability to pay the debts.12.Keeping the above principle in mind, the facts of this casemust be considered. The learned Judge had accepted the contentions ofthe petitioner in the company petition, viz., the appellant herein,as to the proper service of statutory notice and as already referred,the said finding is not questioned by the respondent. A statutorynotice dated 30.3.2002 was issued in the name of Tata SSL Limited forpayment of the outstanding amount. In response to the said notice,the respondent company, by their letter dated 21.3.2002, had informedthe appellant company that it had taken steps to revoke B6 notice andas soon as the normality is restored, the company shall resume thenormal production and shall start releasing the payments against theoutstanding bills as per the understanding with the company. By thesaid letter, the Court could presume that the debt was not disputedby the respondent company. In fact, in the balance confirmationstatement, the appellant company had claimed the balance due to themas on 30.6.2002 in a sum of Rs.31,51,399/-. The figures in thebalance confirmation statement is disputed by the respondent companyon two grounds. Firstly, that the balance confirmation statementincludes the amounts due from the respondent company representing theyears 1998 and 1999 and hence, those amounts are barred by limitationand it ought not to have been included in the balance confirmationstatement. Secondly, in the first note to the said balanceconfirmation statement, the appellant company had asked therespondent company to confirm the balance as shown in the balanceconfirmation statement, thereby meaning that the appellant companywas not firm in the actual quantum of moneys due. 13.Insofar as the first objection is concerned, in the balanceconfirmation statement, the appellant company had made a claim for asum of Rs.79,872/- vide document dated 3.5.2002 and further a sum ofRs.2,48,418/- by document dated 31.3.2000. Even if the amountsclaimed for the years 1998 and 1999 are excluded, still the amountshown in the balance confirmation statement was well within theperiod of limitation and was more than Rs.1 lakh, as contemplated https://hcservices.ecourts.gov.in/hcservices/ under section 433(e) of the Act. The submission of the learnedcounsel for the respondent is that in view of the claim on barreddebt, the balance confirmation statement cannot be construed to beone of a definite claim as to the quantum, which is legally enforced.Of course, the learned counsel would also rely upon the judgment ofthis Court in Sri Vijayalakshmi Art Productions v. Sivaraju,G.,[1996 (II) CTC 396]. There cannot be any different opinion that thecourt must find out whether the claim is legally enforceable againstthe company. But, inasmuch as the amount claimed in the balanceconfirmation statement exceeds Rs.1 lakh and the claim in respect ofthe years 2000 and 2002 is legally enforceable, the said judgment isof no assistance to the respondent.14.Insofar as the second submission of the learned counsel forthe respondent, viz., that the appellant company itself was notdefinite about the actual amount due to them from the respondentcompany in view of the first note, it is true that the respondentcompany had been asked to confirm the balance confirmation statementby the said note. But, we do not find any response disputing thesaid claim by the respondent company over the balance confirmationstatement. The main objection in the company petition appears to bethat the respondent company was not served with the notice and exceptstating that there was a bona fide dispute as to the debt, nodocuments are made available to show that there was a bona fidedispute. On the other hand, the appellant company had heavily reliedupon the communication of the respondent dated 21.3.2002 giving aundertaking that the outstanding bills would be settled once thecompany commenced its normal production. On the facts of this case,in our opinion, the appellant company has established that there wasa debt exceeding Rs.1 lakh due from the respondent company and therewas no bona fide dispute.15.One more argument advanced on behalf of the respondentcompany is that the amount was not a determined one and in theabsence of any quantified amount, the appellant company cannot claimthe benefit of Section 433 (e) of the Act. The answer to the saidobjection is the judgment of the Apex Court in Vijay Industries case,cited supra, wherein it has been held that even when the amount isnot quantified, but if the amount is more than the amount specifiedin Section 433 and the claim on the said amount is not denied, thecompany Court should not refuse the winding up of the company.Hence, we find that there was no dispute much less bona fide disputeby the respondent company as to the claim of the appellant company.In the light of the various judgments of the Apex Court referred toabove, we are of the considered view that the appellant company hadestablished its claim for a sum more than the amount specified inSection 433 and the said money was due to them from the respondentcompany. https://hcservices.ecourts.gov.in/hcservices/

16.This takes us to the last submission as to whether therespondent company is unable to pay the debt. When once a debt isestablished and by virtue of Section 434 (1) (a) of the Act, astatutory notice was issued and the company neglects to pay the saidsum within a period of three weeks, in law, it is deemed that thecompany is unable to pay the debts. In view of the deeming clause,the appellant company need not further prove that the respondentcompany was unable to pay the debts. As the respondent company hadfailed to honour the statutory notice by making payment, it must beheld that it was unable to pay the debts.17.For the above reasons, we are of the considered view that theappellant company is entitled to succeed. Accordingly, the appeal isallowed. No costs.Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.sraTo.1.The Sub Asst.Registrar,Original Side,High Court, Madras.+ 1 CC to Mr.R.Srinivas,Advocate,SR.18922+ 1 CC to Mr.R.Murari,Advocate,SR.18925O.S.A.No.172 of 2008SSR(CO)EM/7.5