Nathu Ram Agrawal vs Rajasthan Silicate and Glass Industries Private Limited

P.C. Jain, J.—In this company petition under Sections 433, 334 and 439 of the Companies Act, petitioner Nathu Ram Agarwal has prayed that M/s Rajasthan Silicate and Glass Industries Pvt. Ltd. be wound up and the Official Liquidator be appointed as Liquidator of the Company with all necessary powers under the provisions of the Companies Act (here in after referred to as the Act).

Briefly stated the facts of the case are that the petitioner is a businessman carrying on his various business activities, inter alia, of dealing in chemicals from Shop No. 117, Maharani Gayairi Devi Market, Tripolia Bazar, Jaipur and is a proprietor of M/s. Asiatic Chemicals.

M/s Rajasthan Silicate and Glass Industries Pvt. Ltd. is acompany registered under the Companies Act and having its registered office at 41-A, Industrial Area, Jhotwara, Jaipur.

M/s Rajasthan Silicate and Glass Industries Pvt. Ltd. (here in after referred to as the Company) entered into an oral agreement with the petitioner for the grant of a sole-selling agency for all its glass products and on this basis certain interest free loans were advanced by the petitioner through his proprietory concern M/s. Asiatic Chemicals to the Company. It is stated that during the year 1974-75 a sum of Rs. 60,000/- was advanced and in the year 1975-76 another sum of Rs. 1,35,000/- was advanced by the said M/s. Asiatic Chemicals to the Company. It is further stated that some time in February-March, 1977, the Company decided to shelve its product of manufacture of glass and glass produces and the Company''s Managing Director Shri Govind Narain Trivedi approached the petitioner to convert, the interest free advance into a loan from the petitioner to the company carrying interest at the market rate. The case of the petitioner is that, accordingly, the company''s debit balance was transferred from the books of M/s. Asiatic Chemicals to the personal books of accounts maintained by the petitioner. Thereafter various transactions of further loans and payments were carried on between the Company and the petitioner during a period of next 5 years or so, so that as on 31st March, 1982 a sum of Rs. 1,91,018.75p, remained outstanding against the Company in the petitioner''s books towards the principal amount. The petitioner has further submitted in the petition that the Company ran into serious financial difficulties and was almost facing closure. Thus in a desperate attempt to effect recoveries, the petitioner obtained leasehold rights of the Company''s factory, including its sheds, quarters, office room, godown and open land etc. in favour of the petitioner''s other proprietory concern M/s. Govind Chemicals Industries with effect from 1st September, 1982. The said lease was on a rent of Rs. 3.000/- p.m. on the terms, inter alia, that the petitioner would be entitled to adjust entire amount of lease rent towards the company''s outstanding. This lease deed was not executed, but the possession of the leased premises, furnaces, plant and machinery etc. were duly handed over by the Company to the petitioner. A sum of Rs. 9,000/-was also adjusted out of the aforesaid outstanding of Rs. 1,91,039.75p. It is also submitted by the petitioner that a notice for public auction of company''s premises was published by the salet-tax authorities, in the Rajasthan Patrika on 2nd March, 1984 for recovery of a sum of Rs. 2 lacs, being the outstanding liability of the the company regarding payment of sales-tax. The Company put forward its objections to the sales tax authorities. A notice dated 17th August, 1984 was received by M/s. Govind Chemicals-Industries from the Commercial Taxes Officer ''E'' Circle, Jaipur requiring it to deposit the entire rent amount with the sales-tax authorities. The petitioner appeared before the Sales Tax Authorities and explained to them the the position of the rent account. Another creditor of the Company Rajasthan Financial Corporation also got published another notice for auction of lands, buildings, plant and machinery etc. in the Rajasthan Patrika dated 7th August, 1985. Prior to this notice, the said Corporation on 27th December, 1984, had forcibly taken over all the leased premises from the petitioner It is further stated that after some time the officers of the Rajasthan Financial Corporation, on the basis of some sort of mutual settlement between the RFC and Company, handed over the possession of the property to the Company. The petitioner approached the Company''s Directors to give possession of the leased premises, but the possession of the leased premises were not handed over to the petitioner. In these circumstances, the petitioner was left With no alternative but to file a civil suit for delivery of possession and for permanent injunction for restraining the company from transferring or otherwise disposing of the property. The said suit was filed in the Court of District Judge, Jaipur City, Jaipur, which was later on transferred to the Court of Additional District Judge No. 2, Jaipur City Jaipur. Inspite of the suit having been filed, as aforesaid, the petitioner continued his efforts for the recovery of debts along with interest thereon and, ultimately a statutory notice under the provisions of (he Companies Act was sent on 10th March, 1985 and after the expiry of the period of notice, the petitioner filed this petition for winding up of the Company.

The contention of the petitioner, thus, is that the Company has grossly neglected and failed to pay the petitioner creditor''s demand for payment after service of statutory notice and, therefore, the Company is liable to be wound up. It is further stated that the petitioner''s chances of recovery are very doubtful as the Company is going through a period of grave financial strains. It is also the case of the petitioner that the Company has lost its stratum. The petitioner has claimed a sum of Rs. 4,55,618.75p.

The company petition was admitted vide order dated 3rd May, 1985 and a notice io show cause was issued to the petitioner as to why the petition should not be published. In the reply submitted by the Company, the Company has admitted that the petitioner has been doing his business and trading activities in the names of Nathu Ram Agarwal, Asiatic Chemicals and Govind Chemical Industries. The Company has denied that in the year 1974-75 it had entered into any oral or documentary agreement with the petitioner for grant of sole selling agency for all of its glass products or that the petitioner advanced any amount as interest free loan through any of his proprietory concern. The Company has also denied to have entered into any lease agreement as is contended by the petitioner. However, it was agreed by the company that a licence deed was entered into between the Company and the petitioner by which the Sodium Silicate Plant was agreed to be given on licence for a maximum period of two years with effect from 1st September, 1982, on a licence fee of Rs. 3,000/-. The Company also denied the correctness of the sales-tax liability. As regards the allegations made by the petitioner about taking over possession by the Rajasthan Financial Corporation, the Company submitted in the reply that a settelement was arrived at between the Rajasthan Financial Corporation and the Company, whereby the RFC handed over the possession of the factory back to the Company. The Company denied that the petitioner had over approached the Directors of the Company after he had given possession back to the Company on 15th December, 1984. The Company also stated in the reply that before filing this Company Petition on or about 2nd May, 1985, the petitioner had already filed a suit for specific performance against the Company on or about 28th February, 1985 In the suit, the main relief claimed was to take back the possession of the factory from the Company. The Company has further stated that along with the suit, an application under Rule 39, Rules 1 and 2, CPC was also filed by the petitioner in the Court of the learned District Judge, Jaipur City, Jaipur, but when he failed to get any order of injunction from the Court the present company petition was filed on 2nd May, 1985, only with the view to pressurise the Company for handing over back the factory through winding up proceedings. The Company, thus, submitted that filing of the petition of winding up is not bonafide. It is also submitted that t will be against the contributors and creditor if an interest of the company, its share-holders, contributors and creditor if an order of winding up is made against the company. The Company, thus, prayed that the winding up petition be dismissed with costs.

The parties to the petition have filed certain documents in support of their case. Amongst these documents there is a copy of the plaint in suit bearing No. 175/1987, filed by the petitioner against the Company for recovery of a sum of Rs. 2.80,380/-. There is also on record a copy of the application under Order 39 Rules 1 and 2 CPC filed by the petitioner against the Company and the Rajasthan Financial Corporation in the matter of the suit for the specific performance and injunction.

Shri S.M. Mehta and Shri Anant Kasliwal, learned Counsel for the petitioner, submitted that since the Company has grossly neglected and failed to pay the dues of the petitioner after service of statutory notice which clearly proves the financial insolvency of the Company, it will, in these circumstances, be appropriate to pass an order for winding up of the Company.

Controverting the submissions made by the learned Counsel for the petitioner, Shri U.N. Bhandari, learned Counsel for the Company, submitted that no case has been made out for passing an order for winding up of the Company as the petitioner has failed to make out a case of any liability against the Company and further the defences raised by the Company are all bona fide. He has further submitted that the petition for winding up should be dismissed solely on the ground that the petitioner has already filed a suit against the Company for specific performance and also for the recovery of the alleged claim against the Company.

In order to appreciate the rival contentions made by the learned Counsel for the parties and before taking into consideration various circumstances narrated above, it would be better if the principles relating to winding up of the Company are considered. The principles relating to winding up order have been authoritatively decided by their Lordships of the Supreme Court in Amalgamated Commercial Traders Pvt. Ltd. V. Krishnaswami (1965 35 CompCas 456) and Madhusudan Gordhan and Co. v. Madhu Woollen Industries Pvt. Ltd. 1972 24 CompCas 125. In Amalgamated Commercial Traders Pvt. Ltd v. Krishnaswami (supra), reliance was placed on the observations from Buckley on the Companies Act, which are as follows:

A winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bonafide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the court.

In Amalgamated Commercial Traders Pvt. Ltd. V. Krishnaswami (supra) relying on the aforesaid observations S.M. Sikri, J. observed that if the debt was bona fide disputed, there cannot be neglect to pay within the meaning of Section 434 of the Companies Act. If there is no neglect, the deeming provsisions does not come into play and the ground of winding up namely, that the company is unable to pay its debts is not substantiated. Same view was taken in Madhusudan Gordhandas and Co. v Madhu Woollen Industries Pvt. Ltd. (supra), wherein the following observations were made:

Two rules are well-settled. First, if the debt is bonafide disputed and the defence is a substantial one, the court will not wind up the company. The Court has dismissed a petition for winding up where the creditor claimed a sum for gods sold to the company and the company contended that no price had been agreed upon and the demand by the creditor was unreasonable.

Th principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law, and, thirdly, the company adduces prima facie proof of the facts on which the defence depends.

In Mann v. Goldstein (1968) 2 All ER 769 (Ch D) , it was observed that when the debt is disputed by the Company on some substantial ground and the company is solvent, the court will restrain the prosecution of a petition to wind up the company. Similar observations were made in In re Lympne Investments Ltd. (1972) 2 All ER 385 (Ch D). In Ramakrishna Setty v. Clarian Fisheries P Ltd. (1986) 59 CompCa 734), it was observed by the Karnataka High Court that the discretionary jurisdiction of the company court u/s 433 of the Companies Act, 1956, is to be exercised only when the court is fully satisfied that it is called upon to examine the merits of the need for a winding up order and is not to be exercised for settling disputes of a civil nature that may arise out of a contract or obligations arising under an agreement. In In re European Life Assurance Society (1969) LR 9 Eq. 122,127, it was observed as under:

Inability to pay debts must refer to debts absolutely due, that is to say, debts for which a creditor may go at once to the company''s offices and demand payment.

In the light of the observations made by the various courts, as aforesaid, it would be evident that the court should not allow the winding-up proceedings to be exploited as a normal alternative to the ordinary mode of debt realisation and the company court should forbear from deciding a dispute which can be more conveniently investigated in a regular action when the grounds on which the liability is disputed are bonafide and substantial. It is also clear from the above proposition of law that inability to pay debts must refer to debts absolutely due. It is also clear that a company may be wound-up on the ground of inability to pay debts when it is commercially insolvent, viz. unable to pay its debts as they become due, although its assets when realised, including uncalled capital, exceed its liabilities.

Looking to the fact that the parties are litigating almost on the same issue in the civil court in the case of specific performance and injunction and in another case, for the recovery of certain debts claimed by the petitioner against the Company and looking further to the circumstance that the claim raised by the petitioner in the winding-up petition has been denied by the company and the dispute raised by the Company cannot be said to be mala fide. Thus, the company''s debt has been bonafide disputed by the Company and the defence raised by the Company is also of a substantial character and the various disputes raised are of such a nature that they can be conveniently investigated in a regular action.

In the premises aforesaid, ther is no merit in this company petition and the same is dismissed with costs.