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Judgment
Judgement pronounced by A.S. Venkatachalamoorthy, J.—The above appeal has been filed against the order of the learned single Judge
dismissing the petition filed by the appellant herein u/s 433 (e) and (f) read with Section 434(1) and 439 of the Companies Act, 1956, wherein the
appellant herein prayed for winding up of respondent Company viz, NEPC India Limited.
The Appellant/petitioner initiated the said proceedings viz., C.P.No.17 of 1999 contending that it is a Company, incorporated under the Laws
of Denmark, having its registered office at Alsvoj 21 DK - 8900, Randers, Denmark with various objects as set out in the said petition. It is the
case of the appellant that there has been business transactions between the parties and under minutes No.NEPC-024 dated 16.6.1997 substituted
at the request of the respondent by the revised minutes NEPC-025 dated 16.6.1997 and letter No.NEPC-026 dated 17.6.1997 and NEPC-027
dated 17.6.1997, respondent confirmed that a sum of DKK 3, 000, 000 (Danish Kroner Three Million only) is due and payable by the
respondent to the appellant, which it agreed to pay, gradually over a period of 6 to 12 months. It is the further case of the appellant that it sent a
notice dated 22.12.1998 as contemplated u/s 434 of the, Companies Act calling upon the respondent to pay the said sum to the petitioner within a
period of three weeks from the date of notice and that though respondent acknowledged the receipt of notice, did not make payment but only sent
an interim reply dated 14.1.1999 simply denying even the admitted claim. The appellant would plead that the respondent Company is heavily
indebted and is unable to pay its debts and under those circumstances, the Company should be wound up in order to protect the interest of all
concerned and that it is just and necessary that the order of winding up is to be passed.
The respondent herein resisted the said petition interalia contending that the petition is liable to be dismissed since the claim made by the
petitioner is bona fidely and validly disputed by it and in fact it is only the appellant who is liable to pay a sum of Rs.8,35,16,000, which amount the
appellant has admitted in their various correspondences. The specific case put forward by the respondent is that the Company petition is filed only
with an intention to harass the respondent. It is the case of the respondent that pursuant to the agreement appellant undertook to supply spare parts
to the respondent and accordingly supplied, but the same were found to be defective. In fact, respondent on various occasions pointed out the
defective spares supplied and appellant specifically undertook to compensate the same. According to the respondent, the claim of the appellant
that the respondent admitted the liability of DKK 3,000,000 is not correct and the said payment, if at all is only on performance or certain
conditions by the petitioner since it was wholly conditional as evident from the subsequent correspondence. According to the respondent, no
amount is payable to the appellant herein. The respondent''s specific stand is that there is no such letter dated 17.6.1997 bearing reference
No.NEPC-027 executed or signed, a copy of which is now produced, and it has to be noted that the appellant has never in the past produced any
such letter and only as an afterthought with ulterior motive, has produced the photo copy of the same and that the said document alleged to be in
existence is not referred in the Company Petition, so also, not filed or produced at the time of initiating the Company Petition, and in fact only
subsequent to the arguments advanced by the counsel for the respondent on the application for revocation of admission, the appellant produced
the document No.NEPC- 027 in the month of April, 1999 i.e., virtually three months after filing the petition. It is the contention of the respondent
that the said document is forged, fabricated and got up for the occasion much belatedly to support the case of the appellant and this could be
further evident from the fact that in the suit C.S.No.501 of 1998 on the file of this Court, the appellant did not produce the document. It is further
added by the respondent that the appellant has not given the details as to how it arrived the figure of DKK 3,000,000 and absolutely there is no
whisper about the basis of the claim or has produced any proof of its existence. The respondent for the above and various other reasons as set out
in the counter, prayed that the Company Petition may be dismissed.
The learned single Judge, after elaborately considering various material documents, relied on by both the parties, came to the conclusion that
there are disputes between the parties as to the authenticity of some of the documents placed before the Court and as to whether the petitioner is
right or respondent is right, can be ascertained only when both the parties depose in the Court and subject themselves for cross-examination and
when documents are examined by the handwriting experts. Learned single Judge further pointed out that the provisions of the Companies Act only
permit an unpaid creditor to seek for winding up of the Company, which is unable to pay its debts and that therefore it must be established at the
threshold that the appellant is the creditor and a creditor, who is unpaid. According to the learned single Judge, when that very status is being
questioned and for establishing which oral evidence is required, it is not the province of the Company Court to entertain the petition and hold a trial
for determining as to whether the petitioner is a creditor and if so whether he is an unpaid creditor and thereafter proceed to wind up the
Company. The learned single Judge came to the conclusion that the proper course, for the appellant is to proceed against the respondent in the
Civil Court by way of duly constituted suit, establish its claim and thereafter invoke the jurisdiction of this Court, if any decree that may be obtained
remains unsatisfied.
Being aggrieved by the Order of the learned single Judge in C.P.No.I7 of 1999, the unsuccessful petitioner has filed the present appeal.
Before we take up for consideration the merits and demerits of the claims of the parties, we deem it necessary to refer to the provisions of the
Act as well as certain decisions to be kept in mind for the purpose of deciding this case.
Section 433 of the Companies Act sets out the circumstances under which a Company may be wound up by the Court. The relevant portion of
the said section is to be quoted here.
Section 433:- Circumstances in which Company may be wound up by Court.
A Company may be wound up by the Court,-
(a) ...
(b) ...
(c) ...
(d) ...
(e) if the Company is unable to pay its debts;
(f) if the Court is of the opinion that it is just and equitable that the Company should be wound up.
Section .434 explains as to when a Company is deemed to be unable to pay its debts. To quote the relevant portion of the Section.
Section 434:- Company when deemed unable to pay its debts.- (1) A Company shall be deemed to be unable to pay its debts:-
(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the
company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand note is not requiring the company to pay
the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable
satisfaction of the creditor;
The word ''debt'' used in clause (e) of Section 433 has to be understood in a practical and pragmatic sense. It is only when a debt becomes
absolutely due in the sense that the creditor is entitled to its payment presently, there is a relationship of a debtor and a creditor.
In order to determine whether a Company is able to pay its debts or not, the matter to be considered is whether the Company is able to meet its
liabilities as and when they accrue due. The mere fact that the Company''s assets are less than its liabilities is by itself no ground for sending the
Company to winding up. The test laid down is that the Company should be commercially solvant which means that the Company should be in a
position to meet its liabilities as and when they arise.
In this context, the following passage occurring in the ruling reported in Pradeshiya Industrial and Investment Corporation of U.P. Vs. North
India Petrochemical Ltd. and Another, can be usefully quoted.
A debt under this section must be a determined or a definite sum of money payable immediately or at a future date.
What then is inability when the section says ""unable to pay its dues""? That should be taken in the commercial sense. In that, it is unable to meet
current demands. As stated by William James, V.C. it is ""plainly and commercially insolvent - that is to say, that its assets are such, and its existing
liabilities are such, as to make it reasonably certain - as to make the Court feel satisfied - that the existing and probable assets would be insufficient
to meet the existing liabilities"". (In European Life Assurance Society, Re, LR 1869 (9) Eq 122; V.V.Krishna lyer & Sons v. New Era Mfg.
Co.Ltd. 1965 (35) Comp Cas 410.
An order u/s 433(e) is discretionary and the Court has to on the basis of facts of each case on the available materials before exercising its
discretion, come to a decision.
Reference in this regard can be had from the ruling in Of Lynx Ltd. v. Simon Carves India Ltd., 1971 (41) Com. Cas 174 where the High
Court ruled thus,
Whether the disputes which are raised or sought to be raised are bona fide or not and whether the same have been manufactured for the purpose
of resisting a case for winding up of the company, will have to be considered and determined by the Court on the basis of the facts of each
particular case and on the basis of the materials that may be available to the Court at the time of Court is called upon to decide the question.
Invoking the provisions of the Companies Act and seeking a prayer for winding up will not be entertained if it is only in the nature of exercising
pressure to enforce payment of a debt. The Supreme Court of India in the case of Amalgamated Commercial Traders Pvt. Ltd. v. A. C. K.
Krishnaswamy, 1965 (35) Comp. Cas. 456 (So ruled thus,
It is well settled that winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide 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 stigmatised as a scandalous abuse of the process of the Court.
The above view of the Supreme Court was in fact reaffirmed by it in the subsequent ruling viz. Pradeshiya Industrial and Investment Corporation of
U.P. Vs. North India Petrochemical Ltd. and Another, .
The Supreme Court of India, in the decision of Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., , laid down three
principles as to which the Court has to exercise its discretion. The Apex Court ruled,
The principle 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.
Again in a subsequent decision reported in Pradeshiya Industrial and Investment Corporation of U.P. Vs. North India Petrochemical Ltd. and
Another, the Supreme Court affirmed the above ruling.
If the debt is bona fide disputed and the defence is a substantial one. the Court will not wind up the Company. 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. The test is whether the dispute is raised only to avoid payment of the debt and not based on the substantial around.
Coming to the facts of this case, admittedly there has been business transactions between the parties for several years prior to the filing of this
Company petition. The appellant/petitioner would contend that it would be sufficient if four documents viz., (a) NEPC-024 dated 16.6.1997; (b)
NEPC 025 dated 16.6.1997; (c) NEPC-026 dated 17.7.1997 ; (d) NEPC-027 dated 17.6.1997 are considered, which according to him would
clinchingly prove that the respondent is liable to pay the sum claimed by it and which he has not, in spite of the statutory notice, unable to pay and
consequently winding up order must be passed. This claim of the appellant is strongly refuted by the respondent. Consequently, we have now to
examine these documents to find out whether the respondent has admitted its liability and whether it is resisting the claim of the appellant bona fide
and for which it has produced materials before the Court.
The first document is NEPC-024, dated 16.6.1997. The first paragraph of the document says that the parties mutually agree that they have no
claims whatsoever against each other prior to this day of 16 July, 1997, with the exception of the below mentioned DKK 3.0 million, and therefore
agree not to take any legal action against the other party regarding matters originating prior to this date and the same has to be settled down over
the coming 6 to 12 months. Rest of the contents of the document may not be relevant and hence we are not referring to it. A perusal of the said
document would show that it bears an endorsement which appears to have been made in pencil and duly initialled by the person who signed that
letter on behalf of the appellant and that person is by name Mr.Steen Andersen. The said endorsement on the top of the document reads thus,
ORIGINAL AGREEMENT REPLACED BY NEW (2 NEW) OF SAME DATE.
The fad that the said document is replaced by two other documents is not disputed by either parties. In fact, the appellant would not plead that the
said document has created a binding agreement between the parties and consequently this document has to be ignored.
The next document is with reference No.NEPC-025 dated 16.6.1997. A reading of the said document would show that it does not refer to
the liability of the respondent to pay a sum of DKK 3 million to the appellant. This document is not disputed by the parties as recording a binding
agreement in relation to the matters dealt, with in that document.
The learned counsel appearing for the appellant would strongly contend and placed reliance on the remaining two documents under reference
NEPC-026 and NEPC-027 both dated 17.6.1997 and submitted that these two documents would clinch the issue and that it is beyond any iota of
doubt that the respondent owes a sum of DKK 3 million. Let us first consider the document under reference No.NEPC-026 dated 17.6.1997.
The said document which is admittedly signed by the representatives of both the parties and it reads thus.
We thank you for pleasant meeting yesterday at the Connemara Hotel in Chennai, where it was agreed that the total balance between the two
companies amounting to DKK 3.0 mill. in the favour of Micon A/S, must be settled gradually by NEPC INDIA LTD. over the coming 6 to 12
months. The settlement may take place in India to Micon A/S'' fully owned subsidiary, AWT (Asian Wind Turbines (Pvt.) Ltd.).
In this document also we find an endorsement made in pencil and duly initialled by the person who signed the document, representing the appellant.
The endorsement reads thus.
REPLACED BY NEW (ON FAX)
In paragraph 4 of the Company petition, the appellant has referred to the said document. The learned counsel for appellant would contend that this
document should be read along with the next document viz., NEPC-027 dated 17.6.1997. respondent would state that NEPC-026 dated
17.6.1997 was replaced by another document wherein it (respondent) imposed certain conditions and that document is not forthcoming and the
signature found in the document NEPC-027 dated 17.6.1997 is not the signature of its representatives.
Or in other words, while the appellant would say that NEPC-027 dated 17.6.1997 is the substituted document duly signed by the
representative of the respondent, the respondent would deny the same. Appellant''s case is that reading of NEPC-026 and NEPC-027 would fix
the responsibility conclusively. on the respondent. The respondent on the other hand would strongly contend that no reliance can be placed on the
document under reference NEPC-027 for the following reasons:
(a) the original of NEPC-027, dated 17.6.1997 has not been so far produced before the Court?
(b) the signature found in the said document alleged to be that of Mr.Rajkumar Khemka. Vice Chairman, NEPC is a forgery;
(c) The appellant has not come forward with any explanation for not produc-ing the document dated 17.6.1997 under reference NEPC-027 along
with the Company Petition and it was produced before the Court only after a long period of three months;
(d) The statutory notice issued by the appellant dated 22.12.1998 makes a reference to this document NEPC-027 dated 17.6.1997. whereas the
Company Petition is silent and this would only show that the appellant has no"" consistent case and has not come forward before the Court with
clean hands and prays this Court not to grant the discretionary relief:
(e) The document viz., NEPC-027 even though dated 17.6.1997. would show as if it was signed at Chennai, a close examination of the same
would reveal otherwise. The xerox copy of the document was received from Denmark by the appellant by 10th July. 1999. The signature, alleged
to have been made by Rajkumar Khemka, differs when compared with other signatures of the same individual. A close scrutiny of the same would
show that it is not the signature of Mr.Rajkumar Khemka.
We do see substance in the various objections raised by the respondent. The matter requires deeper investigation, which would only mean
examination of witnesses including handwriting experts. In the Company Petition, the document under reference NEPC-027 dated 17.6.1997 was
not produced and only a xerox copy was produced later, when particularly this document found a specific reference in the statutory notice. Above
all. the appellant is yet to produce the original of the document. Certainly it cannot be said that the respondent has come with the defence without
any substance and in bad faith.
As rightly-pointed out by the learned single Judge, the Court has to go into the authenticity of certain documents, which exercise would mean
examination and cross- examination of witnesses.
We are in entire agreement with the learned single Judge and hold that the appellant has not established -at the threshold that it is an unpaid
creditor. In this view of the matter, the appeal has to fail.
Even though appellant has filed the petition u/s 433(f) as well, viz. winding up must be ordered on the ground of just and equitable, the
appellant did not advance any argument on that point.
In the result, we do not find any merit in this appeal and consequently O.S.A.No.94 of 2000 is dismissed. No costs. Consequently,
C.M.P.No.5868 of 2000 is closed.