Bhoruka Steels Limited vs Suresh and Suresh Wires (P.) Ltd.

G. Bikshapathy, J.—Bhoruka Steels Ltd., the petitioner herein filed the present petition under sections 433(e), 434(a) and 439(b) of the Companies Act, 1956, seeking winding up of the respondent-company under the provisions of the Companies Act.

The averments in the petition are that the petitioner is a company registered under the Companies Act. The object of the company is to do business in wire drawing and as manufacturers or dealers in, and exporters and importers in steel wires, copper, etc. The petitioner also renders professional and technical consultancy and advice to individuals, firms, companies, etc., and carrying on any other business in the field of designing engineering relating to wire and cable industries. The other objects have been set forth in the memorandum of association. The petitioner by letter dated January 16, 1990, offered to supply 5.5 mm. M. S. wire rod coils to the respondent. The price fixed was Rs. 96,000 per metric tonne exclusive of sales tax. The payment shall be made immediately after the delivery of the material and for delayed payment 18% interest will be charged. The petitioner agreed to supply 500 mt. in the months of January, February and March, 1990, and also offered a discount of Rs. 150 per metric tonne. However, no discount will be allowed if the total quantity agreed upon is not lifted. The respondent by letter dated January 25, 1990, confirmed the offer. It was also informed to the petitioner that the material will be purchased in the name of the respondent or in the name of the sister concerns, namely, Telangana Steel Industries and V. C. R. and Sons. In pursuance of the terms of supply, the petitioner supplied material to the respondent through invoice dated February 12, 1990, and February 15, 1990. The material was supplied by the petitioner to the respondent and its sister concerns as per the instructions. However, the material supplied under bill No. 478 dated February 14, 1990, to V. C. R. and Sons, the sister concern paid a sum of Rs. 5,000 in cash out of total sum of Rs. 98,493.15 and a cheque was given by V. C. R. and Sons for the balance sum of Rs. 93,493.15 dated March 1, 1990. When the cheque was presented for collection, it was returned unpaid. Therefore, the petitioner by letter dated March 9, 1990, informed the respondent that as per the agreement between the petitioner and the respondent, the respondent is required to make the payment after receipt of the material. Even though the petitioner supplied the material to the tune of 118.130 mt., the amount was not paid. There was exchange of correspondence between the petitioner and the respondent with regard to the payment of the outstanding amount and the discount. Finally, a legal notice was issued to the respondent on April 22, 1991, asking the petitioner to pay the amount with interest at 20% per annum. A reply was sent on May 28, 1991, thereupon a notice u/s 434 was issued to the respondent on November 23, 1992, and the same was acknowledged. Even though the statutory period had expired, the respondent failed and neglected to pay the debt. Under these circumstances, the petitioner approaches this court for the winding up of the company.

A counter-affidavit was filed on behalf of the respondent denying the averments made in the petition. The principal contention in the counter is that the claim of the petitioner-company is against V. C. R. and Sons, which is a sister concern of the respondent-company and the supplies were made to V. C. R. and Sons and a notice dated May 9, 1990, was also issued to the said company. Under those circumstances, the application would have been filed against the said company. It is further stated that the respondent-company was reconstituted on October 1, 1990, and a certificate of incorporation was issued on October 26, 1990. It is also stated by the respondent that the material is only directed to be supplied to the other sister concerns and the payment is made by the company to which the material is supplied and, therefore, the petitioner is not entitled to make the payment (?). Even the fact that the bills were raised against the sister concerns established that the payment shall be made by the respective companies. The petitioner-company denies that the supply was made to it and, admittedly, the material was supplied to V. C. R. and Sons and hence the application filed by the petitioner-company is not maintainable.

One witness was examined on behalf of the petitioner and one witness was examined on behalf of the respondent. Exhibits A-1 to A-19 were marked for the petitioner while exhibit B-1 was marked for the respondent.

The questions that arise for consideration in the present company petition are :

(i) Whether the respondent incurred a debt payable to the petitioner?

(ii) Whether the petitioner-company is entitled to proceed against the respondent-company in respect of the material supplied to V. C. R. and Sons, which is a sister concern?

(iii) Whether the petitioner is entitled for the winding up of the respondent-company under sections 433(3), 434(1)(a) and 439(b) of the Companies Act?

PW-1 is Mr. K. S. Prasad, examined on behalf of the petitioner. He was the officer of marketing. Exhibit A-1 is the copy of the offer. The offer was accepted by the respondent by letter dated January 25, 1990, which is exhibit A-2. Under the agreement a total 500 mt. of M. S. rod coils are required to be supplied within three months, i.e., January, February and March, 1990. The petitioner supplied only 118 tonnes by February 14, 1990. Under exhibit A-8, the amount due is Rs. 93,493.15. The respondent-company issued a cheque for the above sum and the said cheque bounced. The respondent has replied by letter dated March 15, 1990, exhibit A-15. Since the respondent has not been making payments regularly, further supplies were stopped. A notice, exhibit A-16, was issued to the respondent through an advocate and a reply notice is exhibit A-17 sent on behalf of the respondent. A statutory notice was issued under exhibit A-18. Since the respondent did not make the payment, the application is filed. It is accepted by the witness that the respondent-company has two sister concerns, Telangana Steel Industries and V. C. R. and Sons. Exhibit A-10 a cheque was issued by V. C. R. and Sons. The material which is supplied to Suresh and Suresh Wires (P.) Ltd., the respondent herein, has been received by it and the value of the said material was also received. Even in invoices Nos. A-3 to A-8, the name of V. C. R. and Sons is mentioned. It is also admitted that the petitioner did not raise any demand with V. C. R. and Sons for non-realisation of the cheque.

Sri V. Srinivasa Rao, who was examined on behalf of the respondent-company, is the director of the respondent-company. The company had two sister concerns earlier, but after the reorganisation of the company as Suresh and Suresh Wires (P.) Ltd., there are no sister concerns. The present company has nothing to do with the administration of the sister concerns. Exhibit B-1 is the xerox copy of the notice dated May 9, 1990, marked subject to proof and relevancy. The respondent did not issue any notice in respect of V. C. R. and Sons and the petitioner-company. The respondent-company is not responsible for the amount due by V. C. R. and Sons. It is also denied the respondent raised the defence for the first time in the counter.

It is not in dispute that, vide letter dated January 25, 1990, exhibit A-2 communication was sent to the petitioner to the effect that 500 tonnes shall be supplied to the respondent within a period of three months at an agreed price of Rs. 9,300 per mt. It is also agreed to realise the discount at Rs. 150 per mt. The petitioner supplied the material to the respondent and also the other sister concerns and the amounts have been received from the respective companies towards the material supplied.

It is the contention of learned counsel for the petitioner that the petitioner-company supplied the material to the respondent and also the sister concerns and, therefore, the respondent-company shall be deemed to be the purchaser in the eye of law and it is liable to pay the value of the goods supplied either to the respondent or to its sister concerns. The defence was only brought out in the counter and it is not bona fide and, therefore, the said defence need not be relied on by this court. In this regard, he seeks the assistance from the judgment of the Supreme Court in Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., and Paramount Enterprises v. Reechem P. Ltd. [1985] 57 Comp Cas 200 (AP).

The Supreme Court, while dealing with the winding up of the company, held that the principles on which the court shall act for ordering the winding up petition are -

(i) that the defence of the company is in good faith and one of substance,

(ii) the defence is likely to succeed on the point of law, and

(iii) the company adduces prima facie proof of the facts on which the defence depends.

In the instant case, the defence of the respondent-company is that it is not liable to pay the value of the goods supplied to another company, namely, V. C. R. and Sons. Moreover, the notice was required to be issued to V. C. R. and Sons, calling upon it to pay the amounts, failing which the necessary proceedings should be taken against them. In the absence of any positive evidence establishing the liability of the respondent-company in respect of the supplies made to V. C. R. and Sons, it would not be possible to hold that the respondent-company failed and neglected to pay the amount. It is also borne out by the record that V. C. R. and Sons had paid part of the amounts towards the supply of the material by the petitioner-company and in respect of the balance, it had issued a cheque which bounced. The petitioner having accepted the amount and also the cheque from V. C. R. and Sons cannot turn round and say that the respondent-company alone is liable to make the payment.

In Paramount Enterprises v. Reechem P. Ltd. [1985] 57 Comp Cas 200 (AP), the learned single judge of this court held that (headnote) :

"In determining whether a debt is disputed bona fide or mala fide, the conduct of the parties, the character of the pleas and the circumstances which will be peculiar to each case will be the contributing factors."

Learned counsel for the petitioner submits that inasmuch as no reply was sent to the notice issued u/s 434 of the Companies Act, it is not open to the respondent-company to come out with a defence in the counter. Learned counsel for the respondent submits that when the notice itself is incompetent and without jurisdiction, the question of giving a reply does not arise. The material supplied to V. C. R. and Sons and payments made by them form a separate and independent transaction, though the order must have placed by the respondent-company. More so, when the payments were being made independently.

Section 434 itself contemplates that the company shall be deemed to be unable to pay its debts under certain circumstances. The word "debts" has to be understood in its ordinary meaning, thereby the debts incurred by it towards the purchase of material from the petitioner-company are only attracted by the said provisions. There is no evidence to establish that the debts incurred by other companies (styled as sister companies) also should form part of the debts incurred by the respondent-company. Therefore, what is required to be established under sections 433 and 434 is that the company is unable to pay its debts, the material supplied to V. C. R. and Sons cannot be construed as a debt incurred by the respondent-company. When once the debt is not established, the provisions of sections 433(3) and 434 are not attracted. Under these circumstances, I find the petitioner-company failed to establish the debt by the respondent-company. Therefore, the petition u/s 433(3) of the Companies Act is not maintainable.

Accordingly, the company petition is dismissed. There shall be no order as to costs. However, this order shall not preclude the petitioner-company from proceeding against V. C. R. and Sons for realising the amount, which is due to it on account of the supply of material through the relevant invoices.