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Judgment
Commonality of questions of law and similarity of facts incline me to dispose of these five company petitions by this common judgment.
The petitioner has filed these five petitions under Sections 433(e) and (f) and 439 of the Companies Act, 1956, for compulsory winding up of the respondent companies. The petitioner is a public limited company. It was formerly known as the ''State Industrial and investment Corporation of Maharashtra Limited''. The petitioner is known now as SICOM Limited. The respondent/ Companies are Public Limited Companies and the main object of these respondent/Companies is to carry on the business of poultry farming, hatchery, breeder houses, eggs producing and distribution centres and construction of poultry houses and stores.
The State of Maharashtra, vide its resolution No.IDL 1088/(6693)/IND-8, dated 30-9-1988, issued a publication entitled ''Maharashtra''s Package Scheme of Incentives, 1988'' and through this, declared various incentives to several industries covered under the said incentive scheme including poultry and agro-industries. It classified the State into four categories, namely A, B, C and D. ''D'' category would be entitled to maximum incentives in which South Sholapur area fell. The respondent/Companies set up poultry units in this ''D'' category zone and were entitled to the incentives to the extent of 35 per cent of their fixed assets and had applied for grant of incentives.
CP No. 38 of 1996
The case of the petitioner is that the respondent/Company had applied for short term bridge loan of Rs.21,00,000/- which was sanctioned and an agreement was executed in writing on 17-6-1993. This loan was sanctioned against the disbursement of the capital incentives receivable by the respondent/ Company under the scheme of Incentives of Maharashtra Government (for short, ''special scheme'') The respondent/Company had executed a demand promissory note for Rs.21,00,000/- with interest at the rate of 22.5 per cent per annum. Vemuri Sudhakar and G. Parameshwar Rao stood as guarantors. The respondent/Company had also agreed that the loan with interest due shall be paid by it at the end of 12 months from the date of the first disbursement of the loan or shall be adjusted against the disbursement of funds under the special scheme, whichever is earlier. Interest on the disbursed amount of loan was agreed to be paid quarterly at the rate of 20 per cent per annum with a further clause that in the event of default, additional interest at the rate of 2.5 per cent per annum shall be chargeable. An amount of Rs.20,70,000/-was disbursed by the petitioner to the respondent/ Company out of the said short term bridge loan of Rs.21,00,000/- and interest amounting to Rs.7,89,914/-. As on 31-1-1995, the respondent/Company was to pay the principal amount of Rs.20,70,000/- and interest amounting to Rs.7,89,914/- total Rs.28,59,914/-.
The petitioner demanded the amount vide letter dated 14-3-1995, letter dated 22-5-1995, legal notice dated 12-10-1995. The petitioner had clarified in the notices that incentives under the special scheme was to be released by the Government of Maharashtra and the petitioner cannot get the disbursement of funds released from the State. The respondent did not repay the amount. The respondent/Company has become commercially insolvent and, therefore, it is liable to be wound up because it has neglected and failed to pay the loan amount inspite of the statutory notice.
The respondent/Company denied the liability to pay on the ground that in the hope and expectation that the petitioner and the Government of Maharashtra will honour the commitment of providing incentive, they have set up the project in the month of March, 1992. Subsidy sanction letter was issued on 164-1993 for the sum of Rs.29,57,400/- but the subsidy was not paid and the petitioner evaded payment on the ground that disbursement would be made on receipt of funds from the Government of Maharashtra. The petitioner, realising that the delay was on its part and anticipating legal action by the respondent, had proposed to the respondent to apply for temporary loan and under these circumstances, the respondent had filed an application for bridge loan on 4-5-1993. They entered into an agreement on 17-6-1993. The respondent/Company was given to understand that the loan amount was only realisation of subsidy. The petitioner had suggested that the question of payment of interest would be resolved later and the amount of loan shall be repayable by adjustment against the subsidy and the balance would be paid to the respondent. The petitioner is the implementing agency of the State of Maharashtra and the delay in disbursement of the funds has been caused due to the inaction of the petitioner. The respondent/Company is not liable to pay the bridge loan amount. The agreement to pay interest is arbitrary and unreasonable and contrary to the understanding and assurance given to the respondent/Company. The bridge loan had to be adjusted only against the subsidy which the respondent was entitled to obtain in the year 1993. The petitioner and the Maharashtra State are jointly and severally responsible for the losses to the respondent/ Company. It is further pleaded that the respondent/Company was running a Poultry Farm unit and is able to meet its expenditure. It is offering employment to about 103 persons. It is alleged that the dispute raised by the respondent/Company is genuine and bonafide and the petition has been filed only to pressurise the respondent to make the repayment. The respondent/Company was forced to sign on the dotted line of the agreement taking advantage of its desperate condition. Thus, by practising fraud on the respondent, the agreement was obtained by the petitioner on 17-6-1993. Therefore, the petition should be dismissed.
CP No.39 of 1996
The case of the petitioner/Company is that it has advanced a sum of Rs.20,59,000/- to the respondent/Company through agreement dated 17-6-1993 and as on 31-1-1995, the respondent/Company was liable to pay a sum of Rs.20,59,000/- and Rs.7,85,715/- towards principal and interest respectively, totalling to Rs.28,44,715/-. Dr. Madala Srinivas and Smt. J. Anita stood as guarantors. The remaining allegations are almost the same as have been made against the respondent in CP No.38 of 1996.
The respondent has taken almost the similar pleas as have been taken by the respondent/Company in CP No.38 of 1996 and has alleged that, subsidy in the sum of Rs.29,41,500/-was sanctioned vide letter dated 16-4-1995 but it was not disbursed to the respondent/Company. The Company petition deserves to be dismissed.
CP No.40 of 1996
The case of the petitioner is that an amount of Rs.18,92,000/- was advanced as loan to the respondent/Company through agreement dated 17-6-1993 and G. Ankamma and G. Venkata Rao stood as guarantors for repayment of the loan. As on 31-1-1995, the respondent/Company was liable to pay a sum of Rs.18,92,000/- and interest of Rs.7,21,992/-totalling to Rs.26,13,992/-. The remaining allegations are almost the same as have been made in CP No.38 of 1996, against the respondent/Company in that case.
The respondent/Company has alleged that a sum of Rs.27,03,0007-was sanctioned as subsidy vide letter dated 22-4-1993. This amount was not paid to the respondent/Company. It has taken almost the same pleas as have been taken by the respondent/Company in CP 38 of 1996 and has pleaded that the Company petition deserves to be dismissed.
CP No.41 of 1996
The petitioner has alleged that the respondent/Company had obtained a loan of Rs.20,59,000/- and had executed an agreement on 17-6-1993. J.V. Anil Kumar and Chemallamudi Arun Prasad stood as guarantors for repayment of the loan. As on 31-1-1995., the respondent/Company was to pay an amount of Rs.19,52,000/- against the principal and Rs.7,44,883/- against interest totalling to Rs.26,96,883/-. The remaining allegations are almost the same as have been made against the respondent/Company in CP No.38 of 1996.
The respondent/Company in its counter has stated that a subsidy of Rs.27,8 8,200/- was sanctioned vide letter dated 16-4-1993, but this amount had not been paid till today. It has taken similar defence as has been taken by the respondent/Company in CP 38 of 1996 and has requested for dismissal of the petition.
CP No.42 of 1996
The petitioner has alleged that on 17-6-1993, the respondent/Company has taken a bridge loan of Rs. 20,76,0007- and as on 31-1-1995, it was to pay Rs.20,76,0007-against the loan amount and Rs.7,92,2037-against interest, totalling to Rs. 28,68,2037-. It is alleged that A. Ramamohana Rao and K. Damodara Rao stood as guarantors for repayment of the loan. The remaining allegations are almost the same as have been made in CP No.38 of 1996.
The respondent/Company has denied all allegations through its counter. It is alleged that a subsidy of Rs.29,66,100/- was sanctioned vide letter dated 16-4-1993, but this amount was not paid till today. It has taken almost the same defence as has been taken by the respondent Company in CP No.38 of 1996 and has pleaded that the petition should be dismissed.
On the rival contentions of the parties to the petitions, issues were framed in the petitions as follows :
CP No.38 of 1996
(1) Whether the respondent/Company is liable to pay Rs.35,61,787/- to the petitioner?
(2) Whether the respondent/Company is unable to pay its debts?
(3) Whether the respondent/Company is liable to be wound up in view of its indebtedness?
CP No.39 of 1996
(1) Whether the respondent/Company is liable to pay Rs.35,43,0557- to the petitioner?
(2) Whether the respondent/Company is unable to pay its debts?
(3) Whether the respondent/Company is liable to be wound up in view of its indebtedness?
CP No.40 of 1996
(1) Whether the respondent/Company is liable to pay Rs. 18,92,000/- to the petitioner?
(2) Whether the respondent/Company is unable to pay its debts?
(3) Whether the respondent/Company is liable to be wound up in view of its indebtedness?
CP No.41 of 1996
(1) Whether the respondent/Company is liable to pay Rs.33,58,931/- to the petitioner?
(2) Whether the respondent/Company is unable to pay its debts?
(3) Whether the respondent/Company is liable to be wound up in view of its indebtedness?
CPNo.42 of 1996
(1) Whether the respondent/Company is liable to pay Rs.35,72,310/- to the petitioner?
(2) Whether the respondent/Company is unable to pay its debts?
(3) Whether the respondent/Company is liable to be wound up in view of its indebtedness?
It is a matter of record that vide docket order dated 9-2-1998, CP No.39 of 1996, 40 of 1996, 41 of 1996 and 42 of 1996 were consolidated with CP No.38 of 1996 with the consent of the parties to the petitions for recording the evidence of M Timmayya, RW1, the Director of the respondent/Company in CP 40 of 1996 as it was stated that he was the common witness in all the five petitions.
Before I proceed to discuss the evidence and material on record, it would be beneficial to reproduce the following observations of the Supreme Court in the case of Amalgamated Commercial Traders (P) Ltd v. A.C.K. Krishnaswami and another, (1965) 35 CC 456.
"A winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the Company. A petition presented ostensibly for 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. If the debt is bona fide disputed, there cannot be ''neglect to pay'' within the meaning of Section 434(1)(a) of the Companies Act, 1956. If there is no neglect, the deeming provision docs not come into play and the ground of winding up, namely, that the Company is unable to pay its debts, is not substantiated."
It is settled law that, where there is a bona fide dispute put forward by ''the Company, it would be a valid excuse for nonpayment and inability to pay will not be inferred. Where the Company produces prima facie proof of facts on which the defence depends and there is likelihood to succeed in point of law, it cannot be said that the Company has neglected to pay within the meaning of Section 434(1)(a) of the Companies Act. Bona fide dispute implies the existence of a substantial ground for the dispute raised.
Issues No. I and 2:
These two issues are interconnected and, therefore, they have been grouped together for the sake of convenience.
Atul C. Waichal, PW1, has stated on oath that at the instance of the respondent/ Company, the petitioner had sanctioned the short-term bridge loan of Rs.21,00,000/- to the respondent/Company. The loan agreement is at Ex.A1. As per the terms of the loan agreement, it was repayable after expiry of 12 months from the date of the first disbursement and in case the Government of Maharashtra releases the incentive amount to the respondent, the short-term bridge loan was repayable by adjustment even before the expiry of the said period of 12 months. The respondent/Company had executed a pronote, Ex. A2, in favour of the petitioner on 27-6-1993 for a sum of Rs.21,00,000/-. As the respondent/Company had failed to discharge the said debt, the petitioner sent a demand notice on 14-3-1995, which is at Ex.A3. The respondent sent reply dated 30-3-1995, which is at Ex.A4, through which it has requested not to take legal action against it and the liability has been admitted by it. On 7-4-1995, a second demand notice, Ex.A5, was sent to the respondent, but it remained unreplied. Again on 22-5-1''995, the petitioner sent a demand notice which is at Ex.A6, but the respondent did not send any reply to it. On 12-10-1995, notice u/s 434 of the Companies Act was sent by the petitioner demanding the amount due with interest. A copy of the notice is at Ex. A7. The respondent sent a reply dated 6-11-1995 requesting therein to wait as it Was making efforts to obtain release of incentive by the Government of Maharashtra. The reply is at Ex.A8. As no amount was paid, the petitioner again issued a letter, Ex.A9, on 17-11-1995. It sent another notice on 27-11-1995, a copy of which is at Ex.A10. These notices were not replied by the respondent, but it has sent a copy of the letter dated 6-1-1996 which is at Ex.A11. It was addressed to the Principal Secretary, Department of Industries, Government of Maharashtra.
In cross-examination, Atul Waichal, PW1, has stated that the petitioner was the undertaking of the Maharashtra Government till the year 1994. On behalf of the Government of Maharashtra, the petitioner had issued the booklet, Ex.B1. The petitioner is the implementing agency for incentives. He has denied that instead of providing subsidy, the petitioner had granted bridge loan to the respondent/Company. He has admitted that when the Government of Maharashtra sanctions incentives, but the amounts do not reach the petitioner immediately, it sanctions loan to such companies which approach it for loan and this loan is called bridge loan. He was unable to state as to why the Government of Maharashtra had delayed in releasing the incentives. He has also stated that the respondent/Company is not entitled to interest for the delay in disbursement of the amount. He has denied that the ''respondent/Company was forced to sign on the agreements and pronotes which arc at Ex.A1 and Ex.A2 respectively. He has further denied that the petitioner had exploited the alleged weak position of the respondenl/Company.
From the above discussion of the evidence, it appears that the respondent/ Company was granted incentive in pursuance of the special scheme for starting poultry business in Sholapur, but the State of Maharashtra did not release the amount of the incentive to the petitioner on or before 17-6-1993. Therefore, at the request of the respondent/Company, a loan of Rs.21,00,000/-was sanctioned by it as per the terms of the loan agreement, Ex.A1. The respondent/ Company had executed a pronote, Ex.A2, in favour of the petitioner in the sum of Rs.21,00,000/-. As per the terms and conditions of the agreement, the loan was repayable after the expiry of 12 months from the date of the first disbursement or to be adjusted against the disbursement of the funds under the special scheme whichever was earlier. Inspite of demand notices and letters which are at Ex.A3, A5, A7, A9 and A10, the respondent/Company did not repay the amount claimed in the notices. It however sent a reply, Ex.A4, admitting the receipt of the bridge loan and requesting the petitioner not to take legal action.
Atul Waichal, PW1, has admitted in cross-examination that letter, Ex.B2, was sent on 6-8-1996 to M/s. Panduranga Poultries Private Ltd. (respondent/Company in CP 38 of 1996), whereby an amount of Rs. 13,42,322/-was adjusted against the principal of bridge loan account and Rs. 16,15,078/- was adjusted against interest due on the bridge loan account because an amount of Rs,29,57,400/- was disbursed under the special scheme and necessary entries have been made in the books of accounts as on 6-4-1996. He has stated that the petition was filed in the month of March, 1996. Therefore, the aforesaid adjustment was not shown in the petition. He has also admitted that the reply was filed on 30-8-1996, but has denied that this adjustment has not been shown in the reply so that the respondent/Company could be wound up.
On the other hand, Timmayya, KW1, has testified that the respondent/Company had taken loan amount as incentives but had not agreed to pay interest on the amount of the bridge loan. Due to financial condition, they had to sign on the bridge loan agreement. When they had protested for charging interest, they were told that interest would not be charged on the amount of the loan and the loan would be adjusted very soon against the subsidy. In the case of Shree Aslalakshmi Poultries (P) Ltd (respondent/Company in CP No.42,,of 1996) an amount of Rs.7,00,000/-has been adjusted by the petitioner against the bridge loan. It was the responsibility of the petitioner to pay subsidy. Due to the delayed payment of subsidy, the respondent/ Company has suffered losses. In cross-examination, he has admitted that, in the agreement, Ex.A1, it has been mentioned tliat UK State of Maharashtra shall pay the subsidy. He has also admitted that in reply, Ex.A4, his company Karshak Poultries (P) Ltd. (respondent company in CP No.40 of 1996) has stated that it was trying to get a G.O. issued by the Mantralaya. He lias admitted to have received the notices issued by the petitioner/Company. He has also admitted that his company has not stated about the understanding regarding interest in the letters written by its company to the petitioner. He has admitted that the Director of his company has written the contents marked ''A to A'' in the reply, Ex.A11. Similar is the situation in respect of other companies as is found from similar correspondence between them and the petitioner.
In the reply letter, Ex. A11, Karshak Poultries Pvt. Ltd. (respondent/Company in CP 40 of 1996), has stated that Maharashtra Cabinet in its meeting held at Aurangabad in August/September, 1995, had decided to release the funds to the implementing agencies for effecting the disbursement in all the pending cases from ''D'' and ''D+'' zones by December, 1995. The remaining companies have also sent similar replies through Ex.A11.
A look at the agreement, Ex.A1, and the reply notices sent by the respondent/ Companies show that funds under the special scheme were to be supplied by the State of Maharashtra and not by the petitioner though it was the implementing agency of the State of Maharashtra and the bridge loan was paid to the respondent/Companies from the funds of the petitioner itself. The agreement, Ex.A1, reveals that the amount was to be repaid with interest at the rate of 20 per cent per annum after the expiry of the period of 12 months from the date of the first disbursement and in the event the fund was provided by the State of Maharashtra to the petitioner, the amount would be adjusted even before the expiry of one year against the bridge loan amount. From what is stated above, it is difficult to accept the uncorroborated statement of Timmayya, RW1, that the bridge loan was paid to the respondent Company as incentives sanctioned by the State of Maharashtra and the only mode of repayment was by adjustment of the funds supplied by the Maharashtra Government as incentives to be paid to the respondent/Companies through the petitioner and the respondent/Companies were forced to execute the agreement, Ex.A1, and the pronote, Ex.A2.
From the evidence of Atul Waichal, PW1, I get that as on 31-1-1995, an amount of Rs.28,59,914/- including interest was due to be recovered from Panduranga Poultries Pvt. Ltd. (respondent/Company in CP 38 of 1996) and by 6-1-1996 the petitioner has received an amount of Rs.29,57,400/- from the State of Maharashtra as incentives to be paid to this respondent and the petitioner has adjusted an amount of Rs. 13,42,322/- against the principal amount and Rs,16,15,078/-against interest and that it had to recover the balance amount of Rs.7,27,678/-(Rs.20,70,000/- (-) Rs.13,42,322/-) and interest at the agreed rate as on 6-4-1996.
I get from the evidence of PW1 that as on 14-3-1995, Sree Sainath Poultries Pvt. Ltd. (respondent/Company in CP 39 of 1996) was liable to pay an amount of Rs.28,44,715/-including interest and by the date of filing the petition, this respondent was liable to pay a total amount of Rs.35,43,055/- including interest. He has also stated that as on 14-3-1995, Karshak Poultries Pvt. Ltd. (respondent/ Company in CP 40 of 1996) was liable to pay an amount of Rs.26,13,992/- including interest and by the date of filing the petition, the amount had enhanced to Rs.32,55,694/- including interest. Similarly, from his evidence, it appears that Shree Chatrapati Poultries Pvt. Ltd. (respondent/Company in CP 41 of 1996) was liable to pay an amount of Rs.26,96,883/-as on 31-1-1995 including interest and by the date of filing of the petition, this amount has enhanced to Rs.33,58,931/-including interest. From his evidence, it also appears that as on 31-1-1995, Shree Astalakshmi Poultries Pvt. Ltd. (respondent/Company in CP 42 of 1996) was liable to pay Rs.28,68,203/-- including interest and by the time of filing the petition, the respondent/Company was liable to pay Rs.35,72,310/- including interest. In cross-examination he has admitted that part of the amount of the subsidy has been disbursed to this respondent/Company. Thimmayya, RW1, has stated that part of the subsidy amount i. e., Rs.7,00,000/- has been disbursed to the petitioner and this amount has been adjusted by the petitioner against the bridge loan. Thus, the total amount according to the petitioner by the date of filing the petition comes to Rs.28,72,310/-. It is noteworthy that the respondent/Companies have taken a plea that their financial condition was not good at the time of executing the agreement, Ex.A1, and pronote, Ex.A2. In the correspondence also, they have stated that they have suffered heavy financial losses and they may take loan from the Indian Bank.
For the foregoing reasons, I hold that the respondent/Companies have foiled to establish that there is a bona fide dispute regarding the claim of the petitioner and the defence raised does not appear to be probable. I, therefore, hold that the respondent/Company in CP 38 of 1996, Panduranga Poultries Pvt. Ltd., is liable to pay Rs.35,61,787/-, the respondent/Company in CP No.39 of 1996, Sree Sainath Poultries Pvt.Ltd. is liable to pay Rs.35,43,055/-, respondent/Company in CP No.40 of 1996, Karshak Poultries Pvt. Ltd, is liable to pay Rs. 18,92,000/-, the respondent/ Company in CP 41 of 1996, Shree Chatrapati Poultries Pvt. Ltd. is liable to pay Rs.33,58,931/- and the respondent/Company in CP 42 of 1996, Shree Astalakshmi Poultries Pvt. Ltd., is liable to pay Rs.28,72,310/- and these respondent/Companies are unable to pay the aforementioned amounts of debts in spite of demand notices as also notice u/s 434(1)(a) of the Companies Act. Both the issues are answered in the affirmative.
Issue No. 3 :
I have found that the respondent/Companies are unable to pay the debts as mentioned in the preceding paragraphs in spite of the statutory notice sent to them u/s 434(1)(a) of the Companies Act. Their financial condition is not good. There is no material on record from which it can be gathered that there is any chance of resurrection. The word ''may'' used in the opening part in Section 433 of the Companies Act clearly indicates that even if the company sought to be wound up is unable to pay its debts, it is a matter of discretion for the Court whether in the circumstances of the case, it would be in the interest of justice to wind up the company, vide Paramjit Lal Badhwar v. Prem Spinning and Weaving Mills Co.; Ltd., (1986) 60 CC 420. I find that the respondent/ Companies have failed to make out a case for exercising discretion in their favour as there appears to be no chance of resurrection of the respondent/Companies and they have neglected to pay the loan amount. As per the terms of the agreement, Ex. A1, they had to pay interest in every quarter at the rate of 20 per cent per annum, but they have failed to pay even that amount. It is true that in the reply affidavit the petitioner did not mention about the adjustment of incentive that was paid to Panduranga Poultries (respondent/Company in CP 38 of 1996), but it is inconsequential because the petitioner had sent the letter, Ex.B2, to no person other than the respondent/Company, namely, Panduranga Poultries and, therefore, it cannot be said that this fact has been purposely suppressed by the petitioner, particularly when, as noted above, Rs.28,59,914/- was the outstanding balance in spite of the said adjustment.
The case of Ultimate Advertising and Marketing v. G.B. laboratories Ltd, (1989) 66 CC 232, is of no help to the respondent/Companies, because, in that case it was held that the petitioner had failed to establish that the amount claimed was either agreed upon or admitted or decreed by the competent'' Court, particularly the claim for interest at a particular rate. Such is not the case here.
The case of Paramjit La! Badhwar (supra) is distinguishable on facts, because, in that case it was found that the company had not lost its substratum.
Under the aforementioned circumstances of the case, I hold that the respondent/Companies have become commercially insolvent. The Issue No.3 is answered accordingly in the affirmative.
In the result, the petitions are allowed. I, therefore, direct the respondent/Companies to be wound up under the Companies Act. The Official Liquidator shall forthwith take charge of alt the property and effects of the said Companies. The Official Liquidator shall cause a sealed copy of this judgment to be served on the companies by prepaid registered post. The petitioner shall advertise the notice in ''Deccan Chronicle'' and ''Andhra Jyothi'' newspapers within fourteen days and shall also serve a certified copy of the order on the Registrar of Companies not later than one month from the date of receipt of a copy of this order and the costs of the said petition be taxed and paid out of the assets of the Company. Petitioner shall also deposit Rs.5,000/- (Rupees Five Thousand Only) with the Official Liquidator to meet the initial expenditure. Costs as incurred.