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Judgment
This appeal is directed against the order dated March 17, 1989, of a learned single judge of this court disposing of the respondent''s petition under sections 433, 434 and 439 of the Companies Act, 1956.
The brief facts of the case are that the appellant appointed the respondent as its advertising agent-cum-advertising consultant. The terms and conditions of appointment were reduced in writing annexurc "C" dated October 31, 1983. The appellant required advertising services of the respondent for its newly established units for the production of mushrooms and mushroom growing composts. The respondent was required to provide publicity material, display devices and other advertising services for the aforesaid products. There was also a minimum billing guarantee and if the billing fell below that level, the respondent was entitled to charge 15 per cent. service fee on the shortfall. The case of the respondent is that various works connected with the aforesaid advertising were executed and 15 bills were submitted during the period February 28, 1984, to June 13, 1984, claiming a total amount of Rs. 1,24,952.34. Copies of these bills have been marked together as annexure "B". The further case of the respondent was that a payment of Rs. 34,000 was made by the appellant on two dates, namely, April 9, 1984, and May 25, 1984, leaving a balance of Rs. 90,952.34. Correspondence was exchanged between the parties, in which the respondent pressed for payment and the respondent''s case is that the aforesaid amount was acknowledged to be due from the appellant to the respondent. A meeting between the representatives of the two companies took place on August 28, 1986. The minutes of the meeting were drawn up by the respondent on September 3, 1986. The further case of the respondent is that the outstanding balance of Rs. 90,952.34 was confirmed by the authorised representative of the appellant-company. In addition, the appellant''s representative promised to pay 18 per cent. interest on the outstanding amount "very soon", Another meeting took piace on September 4, 1986, The minutes of that meeting were committed to writing by the respondent''s representative on September 5, 1986. The respondent''s case is that as a result of the meeting it was acknowledged that the appellant would pay Rs. 52,500 on account of compensation under the minimum billing guarantee clause of the agreement. Ultimately, the appellant failed to pay the amount. A statutory notice, annexure P-10, dated November 29, 1986, u/s 434 was served by the respondent. It was replied to by the appellant, vide annexure P-11, dated December 23, 1986. The petition giving rise to the present appeal was initially filed on February 4, 1987. The affidavit accompanying the petition was defective. The correct affidavit was filed on September 1, 1988. The learned judge, who was then seized of the matter, while allowing the correct affidavit to be filed specifically ordered that the petition shall be deemed to have been filed on September 1, 1988, the date when the correct affidavit was filed.
In the written statement filed on behalf of the opposite party, the appellant herein, a number of preliminary objections were taken. It was stated that there existed a bona fide dispute about the liability of the appellant with regard to the payment of the amount in question. It was further stated that the respondent had not executed the work for which the bills had been raised. In any case, they failed to supply the blocks, slides, brochures and other advertising material stated to have been prepared and used in connection with the advertising work. A. K. Mukherjee, authorised representative of the appellant-company, who purported to have signed the various proposed estimates in token of approval, had left the appellant-company and he had put his signatures in connivance with the respondent. There were also certain instances of double billing and in any case the appellant wanted to be satisfied about the various advertising work claimed to have been-executed by the respondent on its behalf. It was further stated that the claim related to the period February to June, 1984, and the petition having been filed on September 1, 1988. as explained in the foregoing part of the above narration, was barred by limitation prescribed for the recovery of the amount. Liability to pay interest including the rate of 18 per cent. per annum was also denied. On the merits, it was pleaded that the appellant never acknowledged nor ever confirmed any balance due from it to the opposite party. In particular it was denied that an outstanding balance of Rs. 90,952.34 was ever admitted to be due from the appellant to the respondent either on August 28, 1986, or at any other stage. The appellant''s liability to pay Rs. 52,500 under the minimum billing guarantee clause was also denied on the ground that the respondent had committed a breach of the conditions of the agreement and had failed to carry out advertising work properly and to the satisfaction of the appellant and they were, thus, not entitled to claim any amount under the minimum billing guarantee clause.
By the order under appeal, the learned single judge held that the amount of Rs. 90,000 odd was admittedly outstanding against the appellant. The appellant-company had "neglected to pay .the amount due in spite of repeated demands". It was also held that the appellant had failed to establish that the debt was not bona fide one. In so far as the claim of Rs. 52,500 under the minimum billing clause is concerned, the learned judge left the respondent to its remedy by a regular suit, if so advised. But with regard to Rs. 90,000 odd it was held that the appellant was liable to pay the same along with interest at the rate of 9 per cent. per annum, to he calculated with effect from January 31, 1985, till the date of the order, namely, March 17, 1989, on or before April 21, 1988. It was further directed that if the amount was not paid in terms of the said order, the petition would be advertised as envisaged under Rule 24 of the Companies (Court) Rules, 1959, by publication in the newspaper and the Punjab Government Gazette. Aggrieved by the order, the appellant has preferred this appeal.
We have heard Mr, Hemant Kumar for the appellant and Mr. Anil Mal-hotra for the respondent.
The contention of Mr. Hemant Kumar is that at no stage the appellant admitted its liability to pay Rs. 90,000 odd or any definite part thereof. The minutes of the meeting on which reliance has been placed had been uni-laterally recorded by the respondent''s representative and at no stage were those minutes accepted as correct by the appellant. It was further pointed out by him that the correspondence which took place between the parties clearly indicated that the appellant was insisting on being shown the material on which expenditure had been made. It had also communicated to the respondent that its representative, A. K. Mukherjee, had colluded with the respondent in putting his signatures on the proposed estimates for incurring various items of expenditure. In other words, the appellant never admitted its liability to pay the amount in dispute and insisted on being furnished with material to satisfy itself as to how much amount had really been spent in terms of the agreement, so that the claim of the respondent could be considered and settled. With regard to the payment of Rs. 34,000 he submitted that the same was not a part payment and it was only an advance payment and had to be accounted for when the parties settled the account under various heads, Mr, Hemant Kumar highlighted the fact that even the learned single judge had held that part of the claim made by the respondent relating to stipulated service fee on the basis of minimum billing guarantee could not be held to be an amount to which the appellant was indebted and had, therefore, directed the respondent to have its remedy according to law by filing a regular suit.
The contention of Mr. Malhotra, on the other hand, is that in accordance with the agreement, annexure "C", dated October 31, 1983, the respondent had sent for approval the estimated cost of the proposed expenditure on various heads. One of the stipulations while sending such proposed estimates was that if the appellant did not object to the same within a period of ten days, it would be concluded that the proposed expenditure had been approved. As no objection was raised, in terms of the aforesaid condition, the proposed estimate must be deemed to have been approved and expenditure within the limits of that estimate was rightly made and claimed by the respondent and, in fact, the claim had been admitted by the duly authorised representative of the appellant in his meeting with the representative of the respondent. The said admission was duly recorded as minutes of the meeting and the appellant had no bona fide dispute with regard to the payment of the said amount.
We have given our anxious consideration to the respective submissions of learned counsel.
The various clauses of Section 433 lay down the circumstances in which company may be wound up by the court. Clause (e) is relevant for the present case. It lays down that a company may be wound up by the court "if it is unable to pay its debts". The use of the word "unable" is very significant. It is to be distinguished from other words like "refusing to pay" or "neglecting to pay" or "disputing its liability to pay". In the context, the expression "unable to pay" indicates that the inability to pay arises out of the solvency or financial position of the company. The expression "unable to pay its debts" occurring in Clause (e) of Section 433 is statutorily defined in Section 434. The relevant clause for the present case is Clause (a) of Sub-section (1), In order to attract its applicability, inter alia, it must be proved that the company is indebted to the particular creditor. It is well-settled law that machinery for winding up will not be allowed to be utilised merely as a means for realising debts due from a company. Bengal Flying Club, In re [1966] 2 Comp LJ 213 (Cal). In Amalgamated Commercial Traders (P.) Ltd. v. A. C. K. Krishnaswami [1965] 35 Comp Cas 456, 463, the Supreme Court quoted with approval the following passage from Buckley on the Companies Acts (13th edition, page 451) :
"It is well-settled that ''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 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. At one time petitions founded on disputed debt were directed to stand over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order'' ... If the debt was bona fide disputed, as we hold it was, there cannot be ''neglect to pay'' within Section 434(1)(a) of the Companies Act. If there is no neglect, the deeming provision does not come into play and the ground of winding up, namely, that the company is unable to pay its debts is not substantiated."
It follows that if triable issues are raised, the summary jurisdiction of the company court cannot be invoked in order to compel the company to pay the amount on pain of being wound up. This view was taken by a Division Bench or this court in a recent decision in Punjab Ceramics Ltd. v. Punjab State Industrial Development Corporation Ltd. [1990] 1 PLR 526 : [1991] 70 Comp Cas 415 (P & H). There is no material on record to show that the appellant-company is unable to pay the debt in dispute.
Apart from the unilateral recording of minutes of the meeting of the representatives of the two companies held on August 28, 1986, and September 4, 1986, the correctness of which has been disputed, reliance is sought to be placed on memo, annexure P-5, dated August 28, 1986, written by the appellant to the respondent. The relevant part of the memo,, reads as under :
"This is to confirm that we have received your bills amounting to Rs. 1,24,952.34 till June 30, 1984. Regarding balance of Rs. 90,952.34 shown in your statement our representative will contact your office to clarify discrepancy if any.
As discussed with your Mr. Shamim Uddin today we shall let you know the payment schedule in one month''s time. We regret the delay in clearing the amount."
It will be seen that in the first part there is acknowledgment of the fact that the appellant-company had received bills for the whole amount in dispute for the period ending June 30, 1984. In the second part, which related to a balance of Rs. 90,000 odd, there was no acknowledgment or admission as such. On the contrary, it was stated that regarding that balance the appellant''s representative would contact the respondent''s office with a view to clarifying discrepancies, if any. In the third part, it has been stated that schedule for payment would be intimated in about a month''s time. All that the above memo, in our view, amounts to is that there is no total denial of liability. It is equally clear that the above memo does not amount to acknowledging that a sum of Rs. 90,000 odd was due from the appellant to the respondent-company. At best it can be taken to be that some amount was due and the matter was to be dealt with further in order to arrive at a certain figure. Two authorities on which reliance was placed by Mr. Mal-hotra are clearly distinguishable. In Bhiwani Packagings v. Stepan Chemicals Ltd. [1986] 2 PLR 202 the liability was initially admitted but later on there was a total denial and the denial was held to be false. That is not so in the present case. In Straw Board Manufacturing Company Limited Vs. Mahalakshmi Sugar Mills Company Limited, it was held that the defence raised by the company was an afterthought.
Before the appellant-company could be expected to acknowledge its liability to the respondent, the appellant was certainly entitled to be satisfied about the actual expenditure incurred in terms of the agreement by the respondent. This became specially significant, as according to the appellant, its employee and representative, Mr. A. K. Mukherjee, was suspected to have colluded with the respondent-company. The appropriate course, in the facts and circumstances of the case, for the respondent was to have resorted to proceedings for the recovery of the amount rather than to move for winding up of the appellant-company. The facts and circumstances of the case in hand show that there were several, triable issues including the significant issue whether the claim was within the period of limitation. All these issues could not be brushed aside and the appellant-company compelled to pay the amount of Rs. 90,000 odd, which had never been acknowledged to be due from the appellant-company to the respondent.
For the foregoing reasons, we allow the appeal and set aside the order of the learned single judge, leaving the respondent to its remedy by a regular suit, if so advised. The parties shall bear their own costs.