Juneja Chemical Industries (P) Ltd. vs Alam Tannery (P) Ltd.

Sanjib Banerjee, J.—The petitioner presses for the company being wound up for its refusal to pay the petitioner''s dues. The petitioner claims that a principal sum of Rs. 1,23,94,435/- is due to it on account of the price of goods sold and delivered.

In its statutory notice the petitioner claimed as follows before arriving at the principal claim of Rs. 1.23,94,435/- after giving credit to the sums paid by the company:

Our client deals in various chemicals both of Indian and imported origin. During the usual course of business you placed various orders on our clients for supply of diverse chemicals for your tannery factory. From time-to-time our clients supplied you diverse quantities of chemicals.

All the chemicals were delivered to you vide our clients different invoices and the same were duly accepted by you without raising any objection whatsoever. Thereafter, our clients raised and submitted their bills, which were also accepted by you without raising any objection whatsoever. From time-to-time you made various on account payments which were adjusted against the supply made by our clients. The transaction was of running, mutual current account.

During the course of dealing on September 15, 2003, you had admitted and confirmed a sum of Rs. 1,38,93,948 was due and payable to our clients.

The innocuous words appearing in the first of those two paragraphs would indicate that it was routine transaction of orders being placed and supplies accompanied by bills there for arriving at the company''s gates. But the company had quite an elaborate defence in its prompt response of February 8, 2006. In the ten pages of the company''s reply, there is not only the making of a plaint that is apparent, but it is obvious that the plaint was the basis of the reply. The company claimed that the transaction was not the run of the mill and mundane exercise of goods being delivered against the orders placed. The company asserted in its reply that the parties had entered into 13 high seas sale agreements in respect of leather chemicals. Paragraphs 7 and 8 of the company''s response detailed the terms of what appears to be an oral agreement that included a term that the goods were to be stored at the petitioner''s godown and were to be taken delivery of by the company after inspection. It claimed that the goods remained at the petitioner''s godown without the petitioner offering inspection, though the bills in respect thereof were raised on the company. The company claimed that in view of the long-standing relations between the parties it had no room to suspect any foul play. Thereafter, the six paragraphs of the company''s response claimed as follows:

In early April, 2003, your client informed my client that it would offer inspection of the said goods and a portion thereof within a few days and shall complete delivery of the same immediately thereafter. On that occasion, your client requested my client to issue a few post-dated cheques and to sign the balance confirmation as on September 15, 2003, representing that the same would be required by your client for its audit purposes. Believing the representations so made by your client to be correct and as there was no reason for my client to apprehend any mala fide intention on the part of your client, my client issued several postdated cheques in favour of your client and also signed a balance confirmation as on September 15, 2003. My client issued the said postdated cheques and caused the said balance confirmation to be signed in good faith and believing such representations so made by your client to be true and correct. Had my client, had any idea that your client had no intention of delivering the said goods, they would not have issued the said post-dated cheques and also would not have signed the said balance confirmation, which include price of the said goods which were neither sold nor delivered by your client to my client.

Thereafter, in or about July, 2003, my client was shocked and surprised to receive a summons u/s 108 of the Customs Act, 1962, calling upon them to appear before the Directorate of Revenue Intelligence, Kolkata Zonal Unit, Kolkata, for giving evidence and for producing documents pertaining to the transactions under the said Bills of Entry, under which the said goods as aforesaid were cleared.

In December, 2003, my client further received a show-cause notice dated December 26, 2003, from the Directorate of Revenue Intelligence, Kolkata Zonal Unit, Kolkata, calling upon them to show cause as to why proceedings should not be initiated against them u/s 124 of the Customs Act, 1962, for diversion of the said goods imported and cleared under the aforesaid Bills of Entry in violation of the Advance Licence/ Duty Exemption Entitlement Certificate Scheme and for evasion of customs duty.

From the said show-cause notice dated December 26, 2003, and the evidence of one of the directors of your client, i.e. Naresh Kumar Juneja, tendered before the Directorate of Revenue Intelligence Authorities in the proceedings u/s 108 of the Customs Act, my client for the first time came to know that your client had sold a major portion of the said goods covered under the said thirteen high sea sale agreements from its godown to various other parties.

Prior to receiving the said show-cause notice, my client had no knowledge of such illegal acts of diversion by your client in respect of the said goods.

Because of such diversion and/or disposal of the said goods by your client as aforesaid, my client had to pay a sum of Rs. 52,50,030/- to the customs authorities towards customs duty, which was otherwise payable on such imported goods and also a sum of Rs. 7,05,444/- on account of interest on the said sum of Rs. 52,50,030/-. My client was also required to pay further sum of Rs. 95,911/- on account of penalty imposed upon them by the issuing authority of the said advance licence namely the Zonal Joint Director of Foreign Trade, Kolkata.

But for such diversion and/or disposal of the said goods by your client, my client would not have become liable to pay the said aggregate sum of Rs. 60,51,385/- and as such your client is liable to compensate my client for the same. In the alternative, the said aggregate sum of Rs. 60,51,385/- as was paid by my client on account of your client for the said goods which was appropriated and utilised by your client and as such your client is liable to reimburse my client for the said sum of Rs. 60,51,385/-.

The company claimed from the petitioner such sum that it had paid to the authorities, including on account of interest and penalty. In addition, it claimed a sum of Rs. 1 crore on account of damages. The company referred to letters of June 3, 2004 and July 25, 2004, by which the company had asked the petitioner to sit for verification of accounts. Shortly, after shooting off its reply, the company instituted a suit by the second week of February, 2006, in support of the claim found in its response to the statutory notice.

The petitioner submits that on September 15, 2003, the company had confirmed a sum of Rs. 1,38,93,948 as being due to the petitioner as at March 31, 2003. The petitioner relies on a writing at the foot of the four-page accounts appearing at page 13 of the petition, which bears the rubber stamp of the company and the apparent signature of its officer. The petitioner relies on the apparent contradiction of the company''s stand appearing at paragraph 8 of the opposition:

With reference to paragraphs 10 and 11 of the said petition, it is denied that for the periods April 1, 2002 to March 31, 2005, after giving credit to payments made by the company there became due and payable by the company to the petitioner an aggregate sum of Rs. 1,38,93,948/- or any part or portion thereof or any sum as alleged or at all. As stated above, the said confirmation was obtained by the petitioner on the representation that the same was being raised and required by the petitioner for its accounting purposes only. The said confirmation was obtained from the company without actually effecting delivery of the goods covered under the thirteen high sea sale agreements. The fact of non-delivery of the goods covered under the thirteen high sea sale agreements has been admitted by the deponent in the proceedings before the Directorate of Revenue Intelligence, Kolkata Zonal Unit, Kolkata. It is obvious that the purported confirmation relied upon by the petitioner is neither an acknowledgement nor an admission of the alleged outstanding dues. It is denied that the company has acknowledged or admitted a sum of Rs. 1,38,93,948 or any part or portion thereof or any sum at all due and payable by the company to the petitioner as alleged or at all. It is denied that there was any business carried on by and between the parties after the company came to know about the fraudulent activities of the petitioner morefully stated hereinabove that the purported accounts being Annexure ''A'' to the said petition are correct.

The petitioner refers to cheques of total value of Rs. 57,66,209/- dated between May 9, 2003 and July 1, 2003, said to have been issued by the company with the request that the same should not be presented till such time that the company could arrange funds in its Bank account. The petitioner suggests that in issuing such 27 cheques, the company had unequivocally admitted its liability to such extent and, if the contemporaneous letters were to be read alongside these cheques, it would be evident that the company was impecunious and was attempting to threw a cloak over its inability to pay.

The petitioner refers to letters dated May 8, 2004 and May 31, 2004, and the company''s response of June 3, 2004 to attack the stand now taken, The petitioner suggests that the value dated July, 2003, referred to at paragraph 13 of the company''s response to the statutory notice was cleverly arrived at by the company to try and explain away the cheques issued up to July 1, 2003, and the letter of June 3, 2004, issued by it. By the letter of June 3, 2004, the company acknowledged the petitioner''s demand and reminder for payment made on May 8 and May 31, 2004. The petitioner had referred to the company''s acknowledgement of a sum of Rs. 1,63,80,935/- as at April 30, 2004, and the cheques of total value of Rs. 57,66,209/-. To such demands, the company reacted on the following lines:

Here we would remind our various personal meetings in my office where you agreed that you will be personally coming for verification of accounts and correct the false, extra billing having not supplied the goods instead you have sold our goods to another party, which is very highly irresponsible and illegal.

The petitioner urges that despite the company''s reference to the goods being sold to others, its letter conveyed a sense of indebtedness and a request for reconciliation of accounts. The reconciliation, the petitioner argues, was merely a ruse to buy time. The petitioner refers to the statutory notice and suggests that if the company had come to know of the alleged illegal acts of the petitioner in July. 2003, and had suffered show-cause notices therefore by the end of that year, there would be no occasion for such a soft response as the one found in the company''s letter of June 3, 2004. According to the petitioner, there was nothing more detrimental to the company''s interest that it discovered subsequent to December 2003, but the stand found in the company''s letter of June 3, 2004, and the stand taken upon receipt of the statutory notice were irreconcilable.

There is no doubt that the defence is laboured. There is also no doubt that nothing remarkable took place between the company''s letter of June 3, 2004, and its receipt of the statutory notice that could have resulted in the present contrived stand being taken by it. Yet, there is the petitioner''s acceptance of the company''s demand that accounts ought to be reconciled that is found in the petitioner''s letter of June 4, 2004. The two short letters of the petitioner issued on June 4, 2004 and June 24, 2004, support the petitioner''s claim that it is, indeed, the creditor and the company the debtor. But in the petitioner''s acceptance found therein that the accounts were required to be gone into, the petitioner betrayed its awareness that its claim was not free from doubt.

In receiving a winding up petition, not only should the factum of indebtedness be affirmatively established, but the quantum thereof needs also to be conclusively demonstrated. If indebtedness of the company is apparent as to apart of the claim, the Company Court may receive such part of the petitioner''s claim that is free from doubt and require the other, undetermined part to be established elsewhere. Despite the company conveying the overwhelming sense of being a debtor in its letter of June 3, 2004, and a substantial part of the company''s defence in response to the statutory notice being thereby discredited, the petitioner has failed to quantify such part of its claim that can be said to be free from doubt.

Ordinarily, the cheques issued for Rs. 57/- odd lakh would have gone some distance to pin the company down as to the quantum of its unimpeachable debt, but the company''s charge of the petitioner having sold goods to others found in its letter of June 3, 2004, would rob the sanctity of the amount covered by the cheques issued by it as being the sum admittedly due. No doubt, the petitioner has disputed such charge made by the company but upon the charge being made and it being refuted, there is a dispute that needs to be adjudicated upon. And it would be hazardous to accept the sum covered by the 27, now dud, cheques to be the quantum of the company''s indebtedness.

There is good reason for the Company Court requiring the quantum of indebtedness being established before it permits a creditor''s petition for winding up to proceed. For one, even though the floor limit set by the provisions of the Companies Act is a meagre Rs. 500/-, it would be unfair to subject a functioning company to the attendant miseries upon a winding up petition being admitted merely on the Company Judge''s subjective assessment of the quantum of debt being in excess of Rs. 500/-. Secondly, it is open to a company to secure a claim and such option presupposes an amount being determined. Thirdly, in the practice followed by this Court where a winding up petition is considered at two stages, the usual order passed is one permitting the company to pay or secure the amount, prima facie found due, so that advertisements do not ensue and the matter does not progress to the second, and more prejudicial, stage. If the company judge is unable to ascertain the sum that is due to the petitioner, albeit prima facie, then no condition for avoiding publication of advertisements can be set.

In the view that has been taken on facts, the judgments reported at SRC Steel (P) Ltd. Vs. Bharat Industrial Corporation Ltd., and Mannesmann Rexroth (India) Limited Vs. National Engineering Industries Limited, , which have been cited do not call for any detailed reference or application. If a creditor cannot establish the company''s inability to discharge its debts by demonstrating the quantum thereof, its petition need proceed no further. In the SRC Steel P. Ltd. v. Bharat Industrial Corporation Ltd. (supra), the company had set up a counter-claim and had filed a suit based thereon. The petitioning creditor filed its written statement and served a counter-claim therein, which was the same claim on which its subsequent petition for winding up was founded. The Company Judge admitted the petition. The Division Bench allowed the appeal on holding that however dubious a counter-claim of the company, if there was a possibility of its success, that would be enough to resist the winding up petition to proceed to the second stage. In Mannesmann Rexroth (India) Limited Vs. National Engineering Industries Limited, , a Division Bench dismissed the appeal arising out of an order permanently staying the winding up petition upon finding that the appellant-petitioner''s claim was not indisputable. In the instant case, despite the debtor-creditor jural relationship being established by the company''s letter of June 3, 2004, there is no admission of the quantum of debt. If such relationship is established, it keeps the claim alive but cannot be relied upon to bypass the procedure ordinarily required to be followed to establish the quantum of debt. It is in such sense that the petitioner''s claim here cannot be said to be indisputable.

The claim of the petitioner is relegated to a suit and the petition is permanently stayed.

There will, however, be no order as to costs.

Urgent photostat certified copy be issued to the parties, if all formalities in that regard are complied with.