Tube Investments of India Ltd. vs Rim and Accessories (P) Ltd.

Janarthanam, J.—M/s. Tube Investments of India Ltd., (for short ''Tube'') is a public limited company, having its registered office at ''Tiam

House'' No. 28, Rajaji Road, Madras-1, M/s. Rim & Accessories Pvt. Ltd. (for short ''Rim'') is situate at No. 48, Ritherdon Road, Vepery,

Madras-7. The Tube and Rim had business dealings and in the concourse of dealings, Tube had sold and delivered goods to Rim between 6-1-

1986 and 15-4-1986 for Rs. 10,38,592.06. According to contract and understanding, Rim ought to have paid the value of the goods sold and

delivered within thirty days of each invoice or otherwise, it is liable to pay interest at 18 per cent per annum. The interest worked out upto 20-6-

1988 is Rs. 2,89,51130. As such, the total outstanding due is Rs. 13,28,103.35. For the amount due, Tube issued a statutory notice on 30-10-

1986, followed by Advocate''s notice dated 29-12-1986, besides sending several notices dated 7-7-1987, 7-8-1987 and 6-1-1988. Since Rim

did not raise any dispute, but pleaded its inability to pay and for time, Tube had come forward with CP No. 64 of 1988 on 18th July, 1988 for

winding-up Rim on the sole and lone ground of its failure invoking the presumption u/s 434(1) of the Companies Act, 1956.

Tube filed CA No. 606 of 1989 for appointment of a provisional liquidator and the same was allowed as prayed for by an order dated 12-9-

1989 appointing the official liquidator of the Court as provisional liquidator. Aggrieved by that order, Rim agitated the mailer in OSA No. 301 of

1989 and CMP No. 12457 of 1989 for stay of all further proceedings in CA No. 606 of 1989 pending disposal of OSA and the Division Bench

of this Court, on 5-10-1989, granted stay of further proceedings on condition of Rim depositing a sum of Rs. 4 lakhs to the credit of OSA on or

before 19-10-1989. Thereafter, Rim filed CMP No. 12892 of 1989 praying to modify the order dated 5-10-1989 and made in CMP No. 12457

of 1989 by extending the time for depositing the amount and as a matter of fact, the Division Bench made the interim stay absolute on the 29th

January, 1990 subject to the condition of the deposit of the said sum within six weeks therefrom, Rim did not at all comply with the said order; and

consequently, interim stay granted automatically stood vacated.

The official liquidator had even on 5-10-1989 filed CA No. 1077 of 1989 seeking direction for taking possession of assets, effects and

actionable claims of Rim.

When the said OSA was pending, Rim filed CA No. 244 of 1990 on 16-10-1989 praying to set aside the order dated 12-9-1989 made in CA

No. 606 of 1989. This application had been stoutly resisted by Tube.

Rim filed a counter to the main company petition, in pith and substance, raising a bona fide claim of dispute regarding payment of the amount as

demanded in the statutory notice, besides contending that this statutory notice said to have been issued on 30-10-1986 was superseded by

subsequent events, in the sense of issuing of fresh notices preceding the filing of the company petition, and trade resumption.

Initially, arguments were resorted to be advanced in CA No. 244 of 1990 by both learned senior counsel, Mr. Surana and Mr. Rengarajan

appearing for Tube and Rim respectively and during the course of arguments, on this Court entertaining a doubt as to the tenability of this

application, on the face of the pendency of the OSA before a Division Bench of this Court, learned counsel for Rim switched on to press his

arguments on the maintainability of the main company petition itself to which course, learned counsel for Tube also agreed and consequently,

argument were addressed on the maintainability of the main company petition itself. But at the fag end of the argument as to the maintainability of

the company petition, Tube filed CA No. 258 of 1990 for amendment of the company petition by way of addition of certain paragraphs revolving

on the admission of liability by Rim in a specified sum in an obvious bid to knock out its bona fide claim of dispute and inclusion of certain factual

situations for its winding up under the just and equitable clause u/s 433(f) of the Companies Act, which was resisted in full measure by Rim.

The complexion and dimension of the arguments advanced for the maintainability of the company petition will, to a great extent, be affected by

the order to be passed in the amendment application. To put it otherwise, if the amendment sought for is allowed, there may not be any need to

consider the arguments hinging on the question of maintainability of the main company petition. In this view of the matter, the plea raised for

amendment of the company petition and consequent arguments advanced thereon, may fall for consideration in the area of discussion first and

foremost.

As referred to earlier, the amendment sought for revolves on the admission of liability in a specified sum by Rim and the factual situation that

came to light too for incorporation of such materials by way of averments in the main petition for winding-up under the just and equitable clause.

The timing of this application, in the circumstances of the case, assumes paramount importance.

The reason given for the amendment is not that the factual situation had arisen ex improvise, in the sense of the same not having been in

contemplation at the time when the company petition had been filed. But, what had been stated is that by ''oversight'', the incorporation of such

materials in the petition bad been omitted, although the petition had been captioned under sections 433(e) and (f) of the Companies Act, 1956.

This analogy of the reasoning, though appears to be quite attractive at first sight, yet its untenability would surface to the ground, if a little bit of

probe is made into various allegations made in the main petition by having a cursory glance at them. Though the petition is captioned both under

clauses (e) and (f) of section 433 of the Companies Act; yet there is practically no general allegation or averment that Rim was unable to pay its

debts and other obligations, in the sense of its having innumerable creditors. But, what has been specifically averred is that Rim had to make a

substantial payment in a sum of Rs. 13,28,103.35 to Tube on account of the goods sold and delivered on credit basis and despite issuance of a

statutory notice, Rim though admitted its liability, did not come forward to discharge the same within the period stipulated therein, and thereby

unable to pay its debt to Tube by invoking the deeming, provisions u/s 434(1) of the Companies Act. On the face of such averments having been

made in the main petition, the Court can legitimately consider that the petition had been filed u/s 433(e) alone notwithstanding the fact that clause,

namely, (f) of section 433. The emergence of necessity to file such an amendment application is rather obvious, in the circumstance of the case.

Tube, obviously realising at the conclusion of the arguments, hinging on the question of maintainability of the company petition, the unsure and

unstable foundation on which the company petition had been rested, had resorted to file this amendment application in a bid to thwart such a move.

The basis of the amendment application is ''oversight'' and not ''possession of relevant materials'' at the time when the company petition had been

filed. From this, it is clear that the company petition had been filed in a cavalier fashion with so much callousness and sheer negligence.

No doubt true it is that the amendment of the company petition is capable of being allowed, even if the application is filed in a belated fashion

by sheer callousness and negligence. Even then, such an application could be allowed, if it is not causing any prejudice to the other side, in the

sense that the same could not even be compensated by awarding of costs. The amendment sought for, if allowed, is likely to cause incalculable

prejudice-to Rim, in the circumstances of the case. A new case would be allowed to be projected by Tube, if the amendment sought for is

allowed, changing the entire complexion of the proceedings. Case law, in the shape of innumerable decisions had been cited before me on this

aspect of the matter, which I feel need not be enumerated here, as the decisions arrived at in those cases are applicable to the facts and

circumstances narrated, therein and also not exactly similar to the case on hand. The amendment relief is a discretionary remedy and the Court has

to be guided by well-recognised judicial principles in exercise of such discretion, taking into consideration the special circumstances and facts of

the particular case and in this view of the matter, on the facts of this case, I am of the view that the amendment sought for, if allowed, is likely to

spell disastrous consequences in causing prejudice to the cause of justice in affecting to a very great measure, the interest of Rim. As such, the

amendment application deserves to be dismissed.

The edifice or the basis on which the company petition is rested for winding-up Rim is that Rim neglected to pay the amount due by it to Tube

within a period of three weeks after the issuance of the statutory notice dated 30-10-1986. It was further stated therein that Rim had admitted its

liability as averred by Tube in respect of the goods purchased by them on credit basis. If those aspects, as stated by Tube in the company petition

turned out to be correct, then there cannot be any defence at all and Rim has to be necessarily wound-up. The foundation so laid was rudely

shaken by not only the averments made in the counter filed in the main petition but also the correspondence that got exchanged between them on

and from the date of the issuance of the statutory notice on 30-10-1986. To put it otherwise, Rim at no point of time admitted its liability as put

forward by Tube and there was a dispute as to the quantification of the amount actually due by Rim and this could be arrived at only by

reconciliation of accounts by the meetings of the minds together, in the sense of both the representatives of the respective companies sitting

together and arriving at a decision as to the exact amount due by Rim.

It is not as if the statutory notice dated 30-10-1986 did not elicit a reply from Rim. The sordid fact is that on the 10th November, 1986 Rim

had given a reply raising a substantial dispute on many accounts. It would particularly reveal that a sum of Rs. 1 1/2 to 2 lakhs had been paid

during September-October, 1986 by their bankers to Tube, which they claim had not been taken into account. Further, it would reveal that 1.80

metric tonnes of defective steel had been rejected and no credit note had been passed for the same. Yet another claim made therein was that they

did not at all agree to pay interest at 18 per cent per annum, which had been charged by Tube and what was agreed to between them was

payment of interest only at 16 per cent per annum. Enumerating those items of disputes also, besides other items. Rim had already made a request

to Tube to depute one of its representatives during September and October, 1986 to reconcile the accounts. In proof of their bona fide intentions,

they also sent a cheque for Rs. 10,000 on account. Tube, in turn by its letter dated 29th December, 1986 disputed such claims. No representative,

as suggested by Rim, was sent from Tube and no reconciliation of accounts took place.

Thereafter, on the 16th April, 1987, Rim sent a letter to Tube informing them that according to their books, the outstandings are about Rs. 9.5

lakhs only. On 7-8-3987, Tube again sent a communication claiming the sum as demanded in the earlier statutory notice dated 30-10-1986 and

further interest, failing which they will be constrained to take legal proceedings. Despite existence of such a dispute between them, it appears that

there was a trade resumption after an amicable understanding between them and this aspect of the matter is revealed by the letter dated 18-8-

1987 sent by Rim to Tube, which is not at all disputed. Rim on 12th August, 1988 also sent a letter that their liability without interest amounted to

only Rs. 7,86,800.74 and making an earnest request not to charge any interest for the sum due by them. Again on 7-2-1989, Rim sent a letter to

Tube making a pointed reference to the discussion its representative Mr. M.V. Raghunathan had with them and gave the act amount due by them

as Rs. 8,55,781.12, inclusive of interest. Thus, the exchange of correspondence between them points out in unequivocal terms that there is a bona

fide claim of dispute with regard to the amount due by Rim to Tube, about which a topsy-turvy picture had been painted in the main company

petition.

Arguments regarding the pros and cons of the bona fide claim of dispute similar to the one seized of here had been advanced before me in

Company Petition No. 108 of 1987, wherein I had the occasion to consider the decisions of various High Courts and Supreme Court and evolve

three principles, namely,

(1) If there is a dispute as regards the payment of the sum towards principal, however small that sum may be, a petition of winding up is not

maintainable and the necessary forum for determination of such a dispute existing between the parties is the Civil Court;

(2) The existence of a dispute with regard to payment of interest cannot at all be construed as existence of a bona fide dispute relegating the parties

to decide such a dispute before the Civil Court and in such an eventuality, the Company Court itself is competent to decide such a dispute in the

winding-up proceedings; and

(3) If there is no bona fide dispute with regard to the sum payable towards the principal, it is open to the creditor to resort to both the remedies of

filing of a civil suit as well as filing of a petition for winding-up of the company.

The case on hand also falls in the groove of the principles as referred to above and in such a circumstance, it goes without saying that the

company petition deserves to be dismissed, on the face of existence of a bona fide claim of dispute between both the companies as regards the

amount due. In the result, Company Petition No. 64 of 1988 is dismissed and as a consequence, I am constrained to allow CA No. 244 of 1990

setting aside the order dated 12-9-1989 of this Court made in CA No. 606 of 1989 appointing the official liquidator as provisional liquidator.

C.A. Nos. 1077 of 1989 and 258 of 1990 are also dismissed. But, in the circumstances of the case, I make no order as to costs.